Dollar Surge Weighs on Gold’s Rally

Towards the end of last week, spot gold has moved lower and is on track to record a second straight weekly decline. The downturn is largely linked to a sharp rise in the U.S. Dollar Index, which climbed to its strongest level since May 2025. A stronger dollar typically weighs on gold prices because the metal becomes more expensive for buyers using foreign currencies. 

Concerns about inflation tied to the escalating tensions between Iran and the United States, along with expectations that the Federal Reserve could delay its first interest rate cut of the year until at least Q3, have also provided support for the dollar while limiting gold’s upside. 

Although gold’s broader outlook still appears positive, the short-term picture is turning more negative. Over the long term, demand from central banks is expected to offer underlying support. This comes as many of them, including the People’s Bank of China, continue to increase their gold reserves as part of efforts to reduce reliance on the dollar. 

It should be noted though that much of that demand was built around expectations of a lower interest-rate environment, which now looks increasingly uncertain. Since the year began, gold has faced persistent pressure as doubts emerged about the timing of the next reduction in rates of interest. 

Earlier expectations for cuts in January and March were quickly dismissed, shifting market pricing toward a potential move in June. That outlook changed again after the conflict began toward the end of last month, altering inflation expectations and the broader economic outlook. 

Oil markets have played a key role in this shift. Crude prices have surged above $100 per barrel in recent weeks, raising concerns that the conflict could drag on and keep energy costs elevated. Higher oil prices tend to fuel inflation while also slowing economic growth. This creates a difficult balancing act for the Federal Reserve, whose mandate includes keeping inflation near 2%. 

If economic growth and the labor market weaken, the central bank would normally consider cutting rates. However, persistently high inflation limits that option, leaving policymakers more likely to delay easing rather than tighten policy further. Rising crude oil prices appear to be the central factor driving this dynamic. 

As long as the conflict disrupts shipping through the Strait of Hormuz, a critical route for global oil supplies, energy prices could remain elevated. Should oil sustain a move above $100 per barrel, the pressure on gold could intensify further. 

These dynamics in the market will be analyzed closely by firms like Platinum Group Metals Ltd. (NYSE American: PLG) (TSX: PTM) that engage in precious metals extraction. 

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