NextFin News - On Thursday, May 28, 2026, spot gold fell 1.6% to $4,385.85 an ounce, marking its lowest level since March 26, as the traditional relationship between geopolitical turmoil and safe-haven demand broke down. Front-month U.S. gold futures also slipped 1.3% to settle at $4,389.70. The sell-off occurred despite escalating tensions in the Middle East, where renewed uncertainty over the trajectory of the U.S.-Iran war pushed crude oil prices higher.
Typically, a military conflict involving major global powers would trigger a flight to safety, boosting precious metals. However, the current market dynamic has inverted this relationship. Investors are increasingly concerned that surging energy prices will fuel persistent inflation, prompting the Federal Reserve and other major central banks to maintain a restrictive monetary policy stance or even resume rate hikes. This expectation of tighter monetary policy has bolstered the U.S. dollar and pushed Treasury yields higher, significantly increasing the opportunity cost of holding non-yielding bullion.
Mark Haefele, chief investment officer at UBS Global Wealth Management, who has long maintained a structurally bullish stance on precious metals as a core portfolio diversifier, argues that this pressure is temporary. Haefele recently scaled back UBS's year-end gold price target to $5,500 an ounce from a previous forecast of $5,900, but he maintains that the medium-term case remains supported by central bank demand and elevated global debt burdens. According to CNBC, Haefele expects the precious yellow metal to regain momentum as rate hike expectations eventually ease.
The geopolitical landscape remains highly volatile. Under the administration of U.S. President Trump, Washington's stance on the conflict has kept markets on edge, driving the U.S. Dollar Index higher as international investors seek the liquidity of the greenback. A stronger dollar makes gold more expensive for foreign buyers, further dampening demand.
This optimistic view is not universally shared, nor does it represent a consensus among Wall Street institutions. Bank of America, for instance, holds a more conservative year-end gold price target of $5,093 an ounce. Some market participants caution that the era of aggressive central bank gold buying—which propelled the metal to record highs over the past two years—may be cooling. If global interest rates remain elevated through the end of 2026, the opportunity cost of holding gold could prove too high for institutional investors, potentially leading to further liquidations.
Furthermore, the assumption that central banks will easily pivot to rate cuts later this year is highly dependent on inflation cooling down. If the U.S.-Iran war leads to a prolonged energy shock, central banks may have no choice but to keep rates elevated, rendering gold's inflation-hedge status ineffective against the headwind of high real yields. For now, the immediate focus for traders remains on the $4,350 support level, a breach of which could accelerate technical selling.
Explore more exclusive insights at nextfin.ai.
