"Black Monday"! Gold Plummets 6% Intraday, Is the $4,000 Mark in Jeopardy?

Why is the safe-haven halo of gold fading amid Middle East conflict backlash?

Gold is experiencing its worst sell-off since 1983. As the “safe haven” turns into a liquidation machine and rate hike expectations completely crush risk sentiment, where is the bottom for gold?

Driven by escalating Middle East conflict concerns fueling inflation fears and rising global rate hike expectations, gold prices plunged 6% on Monday, erasing all gains for the year and marking the ninth consecutive day of decline. Last week, gold posted its largest weekly drop since 1983.

As of press time, spot gold fell 6%, briefly breaking below $4,200; spot silver dropped over 9%, briefly falling near $61.

KCM Trade Chief Market Analyst Tim Waterer said: “As the conflict in Iran enters its fourth week, with oil prices hovering around $100, market expectations have shifted from rate cuts to potential rate hikes. From a yield perspective, this significantly reduces gold’s appeal.”

Last weekend, U.S. President Trump issued a final ultimatum to Iran, demanding it reopen the Strait of Hormuz within two days or face bombing of its power plants.

Iran responded that if its power facilities are attacked, it will “completely” close the strategic waterway and target energy, information technology, and seawater desalination infrastructure. Trump’s ultimatum was issued at 7:44 p.m. New York time last Saturday.

Waterer added: “During this period of heightened risk aversion, gold’s high liquidity has become its ‘weakness’. The continuous decline in stock markets has forced investors to liquidate gold positions to cover margin calls on other assets.”

Wayne Gordon, an investment advisor at UBS Wealth Management, said: “The scale of gold selling isn’t unprecedented, but today, the speed of selling is much faster than in many past instances.”

As investors weigh the mutual threats between the U.S. and Iran targeting energy facilities, Japanese and South Korean stock markets plunged on Monday. Korea’s KOSPI fell 6.49%, and Japan’s Nikkei 225 dropped 3.48%.

The blockade of the Strait of Hormuz keeps oil prices high, increasing transportation and manufacturing costs, which fuels inflation concerns. Although rising inflation usually boosts gold’s appeal as a safe haven, high interest rates suppress demand for this non-yielding asset.

Market expectations for a rate hike by the Federal Reserve this year have surged, with the likelihood of rate hikes now far exceeding that of cuts. According to CME FedWatch Tool, the probability of a rate hike by December is about 32%.

David Wilson, Head of Commodities Strategy at BNP Paribas in Paris, said that gold’s reaction to “current macroeconomic shocks” has clear historical precedents. He explained: “Looking at the three previous economic shock cycles—2008, 2020, and 2022—gold initially fell in response to market reactions, as investors typically sell assets to hold dollars.” He added that all three cycles eventually saw sustained rallies afterward.

On the technical side, the 14-day Relative Strength Index (RSI) for gold continues to fall below 30, with some traders viewing this level as indicating an oversold condition. Meanwhile, the weekly data released by the CFTC last Friday showed that as of March 17, hedge funds and large speculators’ net long positions in gold reached their highest level in seven weeks.