Gold price drops 29% as Middle East war and higher interest rates weigh

The spot price of gold fell about 29% from its January record of roughly $5,594 per ounce to under $4,000 per ounce within five months. Analysts attribute the correction to the outbreak of the Middle‑East conflict, which sparked an energy‑price driven surge in inflation and reinforced expectations that major central banks – notably the U.S. Federal Reserve and the European Central Bank, which raised its deposit rate to 2.25% – will continue tightening monetary policy. Higher rates make fixed‑income securities more attractive than non‑yielding gold, prompting investors to shift funds. At the same time, daily outflows from gold‑linked ETFs have added pressure, while central banks remain net buyers, with about 45% expecting to increase their gold holdings over the next year. Historical patterns show that after sharp rallies gold often undergoes prolonged pull‑backs, as seen after the 1980 oil shock and the 2007‑09 financial crisis. The market now views gold as a safe‑haven asset primarily for long‑term investors, not a short‑term hedge.