War Erupts... Yet Gold Falls?

Gold prices recorded a notable decline in local markets over the past week, dropping by approximately 2%, influenced by weakening demand, increased profit-taking, and the strength of the U.S. dollar. According to a report by the “iSagha” platform, global gold prices fell by 1.8% during the same period, reflecting reduced appetite for the yellow metal as a safe haven despite escalating geopolitical tensions.

Saeed Embabi, Executive Director of iSagha, an online platform for trading gold and jewelry, stated that local gold prices dropped by about EGP 100 per gram throughout the week. The 21-karat gold gram opened trading at EGP 4,900 and closed at EGP 4,800. On the global front, the price of an ounce of gold declined from $3,430 to $3,369, losing $61 over the week.

Embabi noted that this marks gold’s first weekly decline in nearly three weeks, even as geopolitical tensions in the Middle East intensified, including renewed hostilities between Israel and Iran, as well as the ongoing conflict between Russia and Ukraine. This reflects a paradox in how markets have responded to geopolitical developments.

Despite the recent drop, gold continues to hold a significant position as a safe haven during periods of economic and political uncertainty. In recent weeks, global markets have experienced waves of turbulence that reshaped the risk landscape, pushing gold to record highs. At the peak of the tensions, gold reached $3,451 per ounce, signaling a renewed shift among investors toward safe-haven assets.

On the economic front, U.S. inflation data for May showed a slight monthly increase of just 0.1%, reinforcing market expectations that the Federal Reserve may begin cutting interest rates in its upcoming September meeting — a monetary environment typically favorable for gold.

The Federal Reserve, in its June 18 meeting, kept interest rates unchanged for the fourth consecutive time, within the range of 4.25% to 4.50%. Following the meeting, Fed Chair Jerome Powell emphasized the continued strength and resilience of the U.S. economy, noting that inflation was gradually approaching the Fed’s target levels and that the labor market remained robust.

In a noteworthy shift, Federal Reserve Governor Christopher Waller signaled that interest rate cuts could begin as early as July 2025, provided that economic data continues to show moderation. He also downplayed the inflationary impact of tariffs, stating that a 10% tariff on imports would have minimal influence on prices — reducing the likelihood of tariffs being used as justification for further monetary tightening.

Support for gold now extends beyond individual investors and hedge funds to include central banks, notably China and Russia, which are bolstering their gold reserves as part of a broader strategy to diversify assets and reduce reliance on the U.S. dollar. This institutional demand provides additional support for gold, particularly in the medium and long term.

In this context, a recent World Gold Council survey conducted between February 25 and May 20, 2025, involving 73 central banks, revealed that 76% of respondents expect to increase their gold holdings over the next five years — up from 69% in the previous year’s survey. Furthermore, 95% anticipate a rise in global gold reserves in the year ahead — the highest percentage since the study’s inception.

The same study also highlighted a growing trend toward reducing U.S. dollar exposure in central bank reserves, with 75% of participants indicating plans to lower their dollar holdings over the next five years, compared to 62% in 2024.

Since the beginning of 2025, gold prices have risen by around 29%, with data showing an increase of over 70% over the past two years. Despite short-term volatility, the broader trend points to gold remaining elevated, supported by a combination of geopolitical instability, monetary easing expectations, and strong demand from emerging and developing markets.

In a world increasingly dominated by uncertainty, gold continues to reaffirm its historical role as a shield against crises. It remains an asset free from financial obligations, immune to sovereign defaults or market collapses — a cornerstone for portfolio stability.

Markets now await a series of key U.S. economic indicators this week, including the S&P Global Flash PMI on Monday, consumer confidence figures and Jerome Powell’s testimony before the House Financial Services Committee on Tuesday, followed by new home sales data and his testimony before the Senate Banking Committee on Wednesday. Thursday will bring weekly jobless claims, durable goods orders, and final Q1 GDP data, while Friday will conclude with the release of the core Personal Consumption Expenditures (PCE) inflation report — all of which are likely to shape the direction of future monetary policy.