Gold Rally Falters Amid US-Iran Ceasefire and Strengthening Dollar

Gold Prices React to Iran-US Ceasefire, US Dollar Strengthens

The two-week Iran-US ceasefire has led to a softening of safe-haven demand for gold in the near term, but uncertainty persists amid the blockade of the Strait of Hormuz and the collapse of peace talks between the two warring sides.

On April 13, gold prices fell sharply to a low of Rs 1,51,500 per 10 grams but recovered some of the losses to end the day at Rs 1,51,983, up 0.06 percent from the previous close. Silver, on the other hand, fell 1.14 percent to Rs 2,40,499 a kilogram.

Following the start of the 14-day US-Iran ceasefire last week, gold prices on the Multi Commodity Exchange (MCX) closed up 2 percent while silver climbed 4 percent, bolstered by a short-term weakening of the US dollar.

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

However, the near-term upside for gold prices could be limited if the dollar continues to strengthen. Commodity analysts say that central banks' buying, positive exchange-traded fund (ETF) inflows, and retail demand, especially ahead of Akshaya Tritiya, are supportive of the metal's price.

Commodity analysts say that the recent rise in gold and silver prices is supported by a short-term weakening in the US dollar, but near-term upside could be limited if we see further USD strength.

Ross Maxwell, Global Strategy Operations Lead at VT Markets, said that higher oil prices increase inflation expectations and support a stronger dollar, both of which tend to put pressure on gold and silver.

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

The Augmont report said that the annual inflation rate in the US jumped to 3.3 percent in March, the highest since May 2024. It is also up from 2.4 percent in February, primarily driven by a 12.5 percent rise in energy costs, with gasoline up 18.9 percent and fuel oil up 44.2 percent, due to the Iran war.

After a brief respite, the rupee saw its steepest fall in two weeks on April 13 after crude climbed past $100 a barrel and supportive dollar flows, brought about by Reserve Bank of India's forex curbs dissipated.

The rupee closed at 93.3750 against the dollar, down 0.7 percent, the sharpest decline since March 27, the day on which the central bank rolled out measures to curb excessive volatility.

Analysts said that the ceasefire reduced the immediate fear premium that drove the gains in the previous week. "A stronger dollar, typically gold's inverse, and rising crude oil, reinforcing hawkish Fed expectations, are compressing upside. Profit booking after sharp weekly gains added further pressure," said Renisha Chainani, head of research at Augmont.

Gold reacts sharply during geopolitical events because it is perceived as a store of value when confidence in financial markets weakens. Analysts said that gold has maintained its safe-haven status during the West Asia conflict despite monetary policy headwinds.

"A 2 percent weekly gain, even amid ceasefire optimism, confirms institutional conviction remains strong," Chainani said.

Gold has maintained its safe-haven status during the West Asia conflict despite monetary policy headwinds. War disrupts trade, spikes inflation, weakens currencies, and triggers capital flight — all conditions where gold historically outperforms.