Gold slips in mid-March, weighed by stronger dollar, reduced rate cut expectations
Gold prices edged down in mid-March, weighed by a firmer U.S. dollar and reduced expectations of U.S. interest rate cuts as the Middle East war widened.
Stubborn inflation and resilient U.S. consumer spending, combined with rising inflationary expectations due to the war, have scaled back prospects for interest rate cuts in the world’s largest economy, analysts say.
Gold was 1.57 percent lower to USD $5,018.10 per ounce on March 13, down for a second straight week.
Monetary policy expectations were having a bigger impact on the gold price than geopolitical uncertainties, analysts said.
Also, the U.S. dollar has been acting as a “safe haven” for flights of funds, against the backdrop of the Middle East war.
If the war continues to widen and bottlenecks in oil supplies aggravate, surging oil prices could rise further, hiking inflation, and possibly eroding further U.S. rate cut expectations.
Many analysts have scaled back U.S. rate cut expectations already to just one cut this year, from previous expectations of two cuts in 2026.
If war in the Middle East were to end sooner rather than later, oil supplies would recover and inflationary expectations could ease, but many analysts now foresee a lengthening war with more uncertainties in the oil market.
“The monetary factors are re-establishing themselves as the main drivers of gold and will continue to do so all the more once the Iran conflict ends,” Adrian Day, President of Adrian Day Asset Management, was quoted as saying by Kitco News.
“In the meantime, there will be some fluctuations based on developments and announcements, but, after an initial reaction, geopolitical events are usually subordinate to monetary factors for gold.”
The British pound (GBP) hit a 14-week low against the U.S. dollar on March 13, marking four straight days of losses driven by stagnant UK economic growth and soaring oil prices due to the war in the Middle East.
Rising inflationary pressures due to the surge in oil prices, have raised the possibility of a 25-basis-point rate hike by the Bank of England, ending the latest trend for falling UK rates.
Analysts see heightened expectations of a UK interest rate rise (or a “higher for longer” scenario) as of March 2026, marking a significant reversal from earlier market optimism regarding rate cuts.
Frequently asked questions
Why did gold prices fall in mid-March 2026?
Gold prices slipped in mid-March due to a combination of a strengthening US dollar and reduced expectations for interest rate cuts in the United States. Stubbornly high inflation and resilient US consumer spending, coupled with rising inflationary expectations triggered by the widening Middle East conflict, have prompted analysts to scale back their forecasts for interest rate cuts. The price of gold fell by 1.57 per cent to USD $5,018.10 per ounce on March 13, marking its second consecutive week of losses.
Furthermore, analysts note that monetary policy expectations currently exert a more powerful influence on gold prices than geopolitical uncertainties themselves. The US dollar has increasingly functioned as a safe haven for fleeing funds amidst the ongoing geopolitical tensions. Consequently, this strong performance of the greenback has applied downward pressure on gold, which is priced in dollars.
How is the Middle East conflict affecting expectations for US interest rate cuts?
The widening Middle East war is directly impacting expectations for US interest rate cuts by driving up inflationary pressures. As the conflict escalates, it creates significant bottlenecks in global oil supplies, causing oil prices to surge and threatening to push general inflation even higher. This persistent inflation, along with strong consumer spending in the US, has forced market analysts to drastically adjust their monetary policy outlook.
Many market experts have now scaled back their expectations to just a single US interest rate cut for the entirety of 2026, a sharp revision from their previous forecasts of two rate cuts. While a swift resolution to the war could allow oil supplies to recover and ease inflationary concerns, analysts increasingly expect a prolonged conflict. This ongoing instability in the oil market is likely to keep US interest rates higher for longer than previously anticipated.
Do geopolitical events or monetary factors have a bigger impact on the price of gold?
Monetary factors generally have a more significant and lasting impact on the price of gold than geopolitical uncertainties. Although geopolitical crises like the Middle East war can cause short-term fluctuations, analysts observe that monetary policy and interest rate expectations remain the primary drivers of the precious metal’s value. This trend is expected to become even more pronounced once the current conflict in Iran eventually draws to a close.
Geopolitical events tend to trigger initial, knee-jerk reactions in the market, but these movements are ultimately subordinate to broader monetary influences. For instance, the strengthening of the US dollar, which has acted as a safe haven during the war, is a monetary development that has weighed heavily on gold. Therefore, investor focus remains firmly on central bank policies regarding interest rates and inflation management rather than geopolitical developments alone.
Why has the British pound struggled against the US dollar recently?
The British pound fell to a 14-week low against the US dollar on March 13, concluding four consecutive days of losses. This decline was primarily driven by stagnant economic growth in the United Kingdom alongside soaring global oil prices caused by the widening conflict in the Middle East. At the same time, the US dollar has strengthened significantly as global investors seek it out as a safe-haven asset.
The combination of slow domestic growth and rising energy costs has put immense pressure on the UK economy. With oil supply bottlenecks driving up import costs, the pound has weakened relative to the resilient greenback. This dynamic highlights how global geopolitical tensions and energy market disruptions can quickly translate into currency volatility, leaving the pound vulnerable while the US dollar gains ground as a preferred destination for international capital flights.
How are UK interest rate expectations shifting in response to rising oil prices?
UK interest rate expectations have undergone a dramatic reversal, shifting from anticipation of rate cuts to the likelihood of further rate hikes. The surge in global oil prices, driven by the widening Middle East conflict, has intensified inflationary pressures within the UK. In response, market analysts believe there is now a strong possibility that the Bank of England will implement a 25-basis-point interest rate increase.
This potential rate hike would effectively end the recent trend of falling interest rates in the UK. As of March 2026, market participants are preparing for a “higher for longer” interest rate environment, which stands in stark contrast to the optimism previously felt regarding upcoming rate cuts. The persistent threat of oil-driven inflation has forced policymakers and analysts to brace for tighter monetary conditions to keep rising prices under control.
