Gold on track for worst month since 2008 as Iran war enters its fifth week

Gold edged higher on Tuesday morning, but the metal remained on course to notch its biggest monthly decline in almost 17 years.

By 3:30 a.m. ET, U.S. spot gold was trading around 1% higher at $ 4,553.69 per ounce. Front-month gold futures were up by 0.6% to settle at around $4,553.

Spot gold price

The gains came amid lingering uncertainty over the trajectory of the U.S.-Iran war, which has entered its fifth week.

The Wall Street Journal reported on Monday evening that U.S. President Donald Trump told aides he was willing to end military hostilities against Iran even if the Strait of Hormuz remained largely closed.

Trump said in Truth Social post that Washington was "in serious discussions" with Iranian officials, but added that if a deal was not reached soon U.S. forces would attack electricity plants, oil wells and the critical Kharg Island.

Meanwhile, U.S. Secretary of State Marco Rubio told Al Jazeera in an interview published Monday that Washington's objectives in Iran would take "weeks, not months" to achieve.

Reuters reported that 2,500 U.S. Marines had arrived in the Middle East over the weekend, with unnamed officials telling the news agency the deployed troops were from the elite 82nd Airborne Division.

The conflict in the Middle East has weighed on gold prices, with surging oil and gas prices raising expectations of an inflation spike across economies that will lead to a bout of interest rate hikes.

Spot prices are now on track for a monthly decline of 14.6%, which would mark the metal's biggest monthly drop since Oct. 2008, when prices fell 16.8%.

Wayne Nutland, Investment Manager at Shackleton Advisers, told CNBC on Tuesday that the past four years have changed the way gold is traded.

"Prior to the Ukraine war, the gold price tended to be inversely correlated to real bond yields and the US dollar, with the gold price rising when those metrics fell, and gold falling when those metrics rose," he said.

"The period after the Ukraine war upended these relationships, in particular in 2025 and into early 2026 when gold rose very strongly, far in excess of the moves suggested by those historic relationships."

Nutland added that in the wake of the Iran war, gold had reverted to its more traditional relationships.

"Bond yields and the U.S. dollar have both moved higher, and against this backdrop gold has demonstrated its traditional inverse sensitivity to these metrics, falling as a result," he said. "Gold's declines have perhaps also been exacerbated by the strength of the gold price going into 2026 and possibly a desire amongst investors to liquidate profitable positions."

Iain Barnes, chief investment officer at Netwealth, said the price volatility of gold has been running at twice its historical level in recent months, due to increased participation from financial investors.

"International central banks seeking to diversify their reserves away from U.S. dollars may have started gold's bull market in the past few years, but in the end the market ran out of new financial buyers and instead saw widespread profit-taking as wider uncertainty hit markets and the dollar rebounded," he said in an email.

While Barnes noted that the broad economic and market backdrop differs to 2008, he said there were similarities in that investors with "over-extended starting positioning in commodities" had dramatically amplified price moves after a change in fundamentals and sentiment for the U.S. dollar.

"In the first half of 2008, investors doubled down on the emerging market growth story, fueling commodity price increases alongside dollar weakness even as western economies hit the buffers," he added. "As the global financial crisis spread wider, global risk appetite collapsed and gold was hit alongside more productive commodities such as oil and copper as the dollar surged. This year, the market has again found where investors are most exposed: excessive positioning in gold as it was seen as the last remaining safe haven asset."

In a Monday note, analysts at Goldman Sachs said they were still constructive on gold despite the Iran sell-off, noting that markets had repriced the U.S. Federal Reserve's monetary policy path to one or no rate cuts this year.

"[But] we continue to forecast gold prices reaching $5,400/toz by end‑2026, as central bank diversification continues, currently low speculative positioning normalizes, and the Fed delivers the 50bp of cuts our economists expect," they said. "Our base case assumes no further private sector liquidation of gold nor any additional private sector diversification in gold (beyond the modest boost from Fed cuts)."

They also noted that while risks to their forecast were skewed to the downside in the near term, as persistent disruption to the Strait of Hormuz keeps gold vulnerable to further liquidation, the medium term picture differs.

"Over the medium term, risks are skewed to the upside if the Iran episode — together with broader geopolitical developments (e.g., Greenland, Venezuela) — were to accelerate diversification into gold and to weigh on perceptions of Western fiscal sustainability," they said.