Gold Drops Over 22%, Enters Bear Market As Inflation And Oil Surge Pressure Prices

Gold has plummeted into a bear market, shedding over 22% from its January record highs, as soaring oil prices tied to the escalating U.S.-Iran conflict trigger fears of persistent inflation and an increasingly hawkish Federal Reserve.

The Safe-Haven Paradox

The precious metal hit an all-time high of $5,589 per ounce in January. However, at the last check, gold was trading at $4,357.29, down 22.12% from the record, marking a historic sell-off.

Independent researcher at Ash & Seed Press, Shanaka Anslem Perera, noted the paradox: the war caused oil to spike above $112, which fanned inflation. Brent crude futures currently remain elevated near $107.86, while WTI sits at $98.81.

Fed Holds Steady Amid Oil Shock

Responding to the persistence of inflation, the Federal Open Market Committee maintained its policy rate at 3.5% to 3.75% on March 18.

Fed Chair Jerome Powell explained the shift in the economic outlook during his press conference: “Near-term measures of inflation expectations have risen in recent weeks, likely reflecting the substantial rise in oil prices caused by supply disruptions in the Middle East.”

Powell further cautioned that “in the near term, higher energy prices will push up overall inflation”.

Consequently, the 10-year Treasury yield jumped to 4.41%. As real yields rise, holding non-yielding paper gold becomes much more expensive relative to Treasuries.

‘Makes No Sense’

Prominent economist Peter Schiff heavily criticized the market’s reaction to the hawkish pivot. “Selling gold because rising inflation will keep the Fed from cutting interest rates, when rates are already too low, makes no sense,” Schiff argued.

“Falling real rates are bullish for gold. It’s the stock market that needs rate cuts. That’s why it makes no sense that stocks are down so little.”

Paper Panic, Physical Accumulation

While leveraged traders may face margin calls and dump paper gold after the sell-off, physical accumulation continues. Central banks remain steadfast buyers; the People’s Bank of China recently extended its buying streak to 16 months.

Anticipating long-term structural shifts, major institutions like JP Morgan and Deutsche Bank are ignoring the short-term plumbing issues, maintaining their ambitious year-end 2026 targets of $6,300 and $6,000, respectively.

Here’s a list of some ETFs tracking spot gold price.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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