Gold sinks on leverage and yields, to bounce if Iran tensions drop
Gold is falling further into bear territory due to leverage and government bond yields, but it is likely to bounce quickly on a de-escalation of the Iran war
This analysis from the CEO of one of the world’s largest independent financial advisory organisations comes as bullion extends a sharp sell-off, with prices sliding more than 20% from late-January highs above $5,500, and posting one of the steepest weekly declines in over a decade.
Nigel Green of deVere Group says: “A significant part of this drop is likely being driven by leverage.
“Investors who built large positions using borrowed capital are now being forced to unwind as volatility spikes, and that accelerates downside momentum.”
He continues: “Margin calls are pushing traders to liquidate gold positions to raise cash. Gold had been a standout performer, so it becomes an obvious source of liquidity when markets turn more turbulent.”
Recent moves in currency and bond markets are intensifying the pressure.
The US dollar index has strengthened in recent sessions, while benchmark yields in both the US and UK have moved higher, raising the opportunity cost of holding non-yielding assets.
The deVere chief executive comments: “Rising yields in the US and UK are a critical factor. Investors can now secure more attractive returns from government bonds, which reduces the relative appeal of holding gold, particularly in the short term.
“A stronger dollar compounds the problem. Gold is priced in dollars, so a firmer greenback makes it more expensive for international buyers and dampens demand.”
Ten-year US Treasury yields have pushed higher again, hovering around the mid-4% range, while UK gilt yields remain elevated following persistent inflation data.
Market expectations for aggressive rate cuts have been pared back, reinforcing the upward pressure on yields.
“Markets are reassessing the pace of monetary easing. Sticky inflation keeps yields higher for longer, and gold reacts quickly to that shift because it offers no income,” explains Nigel Green.
Despite the scale of the pullback, he argues that the current move reflects positioning rather than a breakdown in underlying demand.
“Gold’s rally over the past year has been underpinned by structural forces, including sovereign accumulation, geopolitical risk, and fiscal concerns. Those drivers haven’t disappeared.”
Central banks continue to play a dominant role. Global official sector purchases have exceeded 1,000 tonnes annually for several consecutive years, with emerging market institutions, such as the People’s Bank of China, leading the trend as part of a broader diversification away from the dollar.
Nigel Green says: “Central banks are still accumulating at a historically strong pace. This is strategic, long-term allocation designed to strengthen reserves and reduce exposure to currency volatility.”
He continues: “Demand from sovereign buyers creates a powerful floor under the market. It limits the downside and sets the stage for sharp rebounds once short-term pressures ease.”
Geopolitics remains the key catalyst for the next major move. Gold initially surged on safe-haven demand at the onset of tensions involving Iran, before reversing as markets shifted toward cash preservation and yield opportunities.
Nigel Green says: “The pattern is familiar. In the early phase of a crisis, gold attracts inflows. As the situation evolves, investors often pull back to manage liquidity and risk exposure.”
Any credible signs of de-escalation in Iran would “change the dynamic quickly,” with capital that has been sidelined or redirected would likely return to gold at pace.
He concludes: “This is a leverage-driven washout colliding with higher yields.
“Forced selling is overwhelming the market, but it’s temporary.
“We expect a shift in sentiment around Iran would unleash a rapid snapback, and gold would move higher with real force.”