Gold Prices Drop Amid Dollar Strength, But Expected to Recover

Gold prices fell to their lowest since February 20, down 4% at $5,136, as the dollar index surged 0.5% to a more than three-month peak. The sharp fall in gold prices on Tuesday is expected to attract buyers, as a flight to safety lifted the dollar index and interest-rate cut prospects by global central banks, particularly in oil-importing countries.

Dollar Strength Pushes Gold Lower

The dollar's jump has pushed spot gold under the weight of dollar strength, struggling as a safe haven during periods of uncertainty and a long-term hedge against inflation. Dollar strength has made gold less attractive to investors, despite its long-term appeal as a safe haven.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Fundamentals Remain Unchanged

The fundamentals of gold have not changed, with persistent geopolitical and economic uncertainty remaining a key driver of demand. Traders have been cautious following extreme volatility on January 29 when gold hit a record high of $5,594.82, then plunged over the next two sessions.

Increased Gold Price Forecast

BNP Paribas raised its average 2026 gold price forecast by 27% to $5,620, with a peak above $6,250 likely by end-2026. Gold's fall to around the $5,100 level will attract demand from Asia as safe-haven buying continues.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Investor Sentiment

Investor sentiment remains cautious, with a selloff in government bonds and stocks adding to the pressure on gold. Traders who have been long gold since the start of the year could use those gains to take profit in the face of margin calls in equities.