Gold's Year-to-Date Gains Nearly Wiped Out! In the Fourth Week of Iran War, Global Bond Markets and Oil Prices Battle for "King of Fear"

Why is AI · Gold Selling Speed Breaking Records?

Source: Jin10 Data

Due to Middle East conflicts causing energy costs to soar, traders are betting that central banks will raise interest rates, leading to higher global bond yields.

After three consecutive weeks of decline, U.S. Treasury yields have risen to multi-month highs amid market speculation that the Federal Reserve may be forced to hike rates to combat inflation.

The Australian 10-year government bond yield climbed to its highest level since 2011 on Monday, while New Zealand’s 10-year government bond yield rose to its highest since May 2024. India’s 10-year government bond yield reached levels not seen since January 2025. Bond yields in Japan and South Korea also increased, while European bond futures (prices) declined.

“The market is in complete chaos,” said Ed Al-Hussainy, Portfolio Manager at Columbia Threadneedle Investments in New York. “Right now, the market is in a ‘sell first, ask questions later’ mode.”

Last week, concerns over escalating Iran conflicts pushed up oil prices, causing U.S. Treasuries and global bonds to decline. The Bank of England and the European Central Bank signaled that tightening policies might be necessary, while Federal Reserve Chair Jerome Powell stated that the Fed needs to see more progress on inflation before cutting rates again.

U.S. Treasury yields flattened last week, with the two-year yield rising 18 basis points to 3.90%, and the 10-year yield up 10 basis points to 4.38%, with a total increase of over 40 basis points since the outbreak of hostilities. On Monday, the 10-year yield rose another 3 basis points.

“Bonds are now challenging energy markets for the title of ‘most unsettling price movement,’” Benjamin Picton, Senior Market Strategist at Rabobank, wrote in a report.

Just last month, due to expectations of a soft labor market, investors fully priced in two rate cuts by the Federal Reserve this year. As the war continues, interest rate swaps show traders currently believe there is about a 60% chance the Fed will raise rates before October.

The development of the Iran situation remains a key focus for investors in the new week. Mohammad-Bagher Ghalibaf, Speaker of the Iranian Parliament, stated on social media that the headquarters and assets of financial institutions purchasing U.S. Treasuries are “legitimate targets.”

“Rather than being a meaningful escalation, this is a clear signal that we are still very far from any credible ceasefire or resolution,” said Justin Lin, Investment Strategist at Global X ETFs Australia.

In addition to monitoring Middle East tensions, investors will closely watch comments from Federal Reserve officials including Michael Barr and Vice Chair Philip Jefferson. After the surge in yields, this week’s auctions of 2-year, 5-year, and 7-year U.S. Treasuries will also provide a window into investor demand.

Since the conflict began, soaring oil prices have increased inflation risks and diminished the prospects for recent rate cuts by the Fed and other central banks. This is a headwind for gold, which has no yield; gold has declined for eight consecutive trading days and just posted its largest weekly drop since 1983.

This week, as the Middle East war enters its fourth week, with the U.S. and Iran threatening new attacks, gold prices plummeted, nearly erasing this year’s gains. Over the three weeks since the outbreak of war on February 28, part of the decline was due to investors liquidating gold to offset losses elsewhere in their portfolios.

Wayne Gordon, Investment Advisor at UBS Wealth Management, said, “The scale of gold selling isn’t unprecedented, but the speed is much faster than many historical periods.”

David Wilson, Head of Commodities Strategy at BNP Paribas in Paris, noted that gold’s reaction to current macroeconomic shocks has clear market precedents. He said, “Looking at the previous three economic shock cycles—2008, 2020, and 2022—initially, gold declined as markets reacted to the news, with investors often selling assets to hold dollars.”

He added that all three periods eventually saw sustained increases.