Misery doesn't come alone. Gold learned that the hard way. The precious metal plunged to its lowest level in nearly two weeks, and there are several reasons for the decline: an escalation in the Middle East, a stronger US dollar, and a sharp rise in Treasury yields.

A three-day slide in the metal was the longest streak since early July. Global bond yields jumped to highs not seen since 2008, and the US dollar gained strength. For non-yielding gold, these are classic headwinds. CME derivatives show the probability of a quarter-point Fed rate hike this month is nearly 70%.

Daily gold dynamics

The XAU/USD downturn began on Friday, when Fed Chair Kevin Warsh again reiterated his intent to fight inflation. But the sell-off didn't stop there: renewed hostilities in the Middle East pushed oil prices higher, which in turn raised fears of persistent price pressure. FOMC Governor Michael Barr warned that inflation risks becoming entrenched if the central bank does not act decisively.

The US carried out new strikes on targets in Iran, and Tehran announced a response. Weeks of relative calm in the Middle East are over, and the market is once more pricing in a geopolitical-risk premium. Yields on 30-year Treasuries returned to the levels they were at before Treasury Secretary Scott Bessent's attempt to cool the market with an expanded buyback program. The effect proved short-lived: the sell-off resumed almost immediately.

In effect, we are seeing a classic monetary-policy fork in the road. The Treasury wants lower yields, the Fed wants lower inflation, and neither agency is willing to sacrifice economic growth to achieve its goal, notes the World Gold Council. The Fed, however, has greater firepower, and Kevin Warsh's hawkish tone has already nudged the market toward the US dollar rather than XAU/USD. Allianz Global Investors called the market reaction reasonable: the drop simply reflected higher odds of Fed tightening.

Meanwhile, inflows into gold ETFs continue, albeit noticeably more slowly. Net futures positions rose, but the overall bullish sentiment in the futures market has eased somewhat. Still, the WGC believes the short-term downside impulse may not be over — too many factors are weighing on the metal at once.

Can gold reclaim its safe-haven status if the Fed has declared war on inflation? I doubt the answer will come before the current flare-up in the Middle East subsides.

Technically, a pin bar may be forming on the daily gold chart, which could help the metal find a foothold. If that happens, an XAU/USD break above its pin-bar high at $4,337 would provide a basis for buying.