Gold sinks deeper into bear market territory as sell-off extends

Gold extended its slide on Tuesday, deepening its bear market phase, as investors unwind positions, with a stronger U.S. dollar and elevated Treasury yields reducing the yellow metal's allure.

Spot gold prices declined 2% before paring losses to 1% and trading at $4,335.97 per ounce. Gold futures for April delivery were last down over 1% at $4,358.80 per ounce. Spot silver fell more than 3% to $66.93 per ounce, while futures were 2.61% lower at $67.54.

The dollar index, which measures the strength of the greenback against a basket of currencies, was up 0.5% on Tuesday. A stronger dollar reduces greenback-priced bullion's appeal by making it more expensive for holders of other currencies.

Spot gold has now lost over 22% since hitting a record high of $5,594.82 per ounce at the end of January, with the precious metal losing almost 10% last week in its worst showing since September 2011. The dollar index, meanwhile, has strengthened around 3% since the start of the war.

Market watchers attributed the decline to a mix of macro and positioning-driven factors.

"Although gold initially gained due to safe haven demand at the start of the [Iran] conflict, prices have recently pulled back," said Rajat Bhattacharya, senior investment specialist at Standard Chartered.

"We see this pattern repeated during periods of heightened market stress as investors raise cash to pay margin calls or simply book profits where they can," he told CNBC via email, adding that the dollar's recent strength has also weighed on gold demand.

Gold prices since the start of the year

Market participants have also been reassessing expectations for U.S. monetary policy, with persistent inflation reducing the likelihood of aggressive Federal Reserve rate cuts, keeping Treasury yields higher.

Higher yields dent the appeal of non-interest-bearing bullion. The yield on 10-year Treasuries was about 5 basis point higher at 4.384% on Tuesday.

Some analysts noted the sell-off was a natural correction after an extended rally fueled by geopolitical uncertainty and structural demand. Gold rose over 64% last year.

"Gold's recent rally to record highs was driven less by inflation than by a broader loss of confidence: fiscal deficits, geopolitical fragmentation, and central banks quietly diversifying away from dollar reserves," said Zavier Wong, market analyst at eToro.

"After a run like that, some position unwinding was inevitable. Gold has been one of the better-performing assets over the past year, and when markets get choppy, leveraged funds and institutional investors tend to reduce exposure."