Since the Iranian conflict started on February 28, 2026, has fallen by about 25%. The decline is shown in the graphic below, but more importantly, we highlight FinViz’s rationale for why gold traded lower on June 10th. That day, they claim war and hot inflation are the culprits for gold falling by 1.1%.
We bet that if you asked 1000 gold investors on the eve of the Iranian conflict how gold would perform if the war raged for months and significantly higher oil prices pushed inflation over 4%, 999 would be looking for gains. Despite what most investors thought was good news for the metal, gold prices disappointed. Let’s explore why we think this is occurring.
For starters, and as we have mentioned on numerous occasions, the price of gold more than doubled from January 2025 to the end of February 2026. The rationale was that high deficits were debasing the dollar. The narrative and strong momentum roped in many gold investors, resulting in the metal grossly outperforming.
Bottom line, regardless of the news and narratives, gold prices were grossly extended and due for corrective action.
Second, the gold rally occurred while real rates (nominal yields less inflation) were high and rising. As we have quantified in numerous articles, gold prices often have a strong negative correlation with real rates. High real rates, denoting a hawkish, restrictive monetary policy, typically correlate with lower gold prices. Conversely, low to negative real rates point to easy policy and are usually friendly to gold investors.
The relationship stopped working for the last two years. With real rates remaining high and the moving to a more hawkish stance, might the historical correlation be reasserting itself? Might gold investors be betting on a hawkish Fed?
Pullback Cleans Up Bad Breadth
Corrections are healthy market adjustments. As the term suggests, they temper episodes of investor over-bullishness. Such was the case over the last few weeks with high-growth chip and hardware technology stocks grossly outperforming the market, while most other sectors and factors woefully underperformed. With the recent correction, breadth has vastly improved, and many sectors are now clustered as we circle. Technology and utilities, sectors we flagged as very overbought and oversold two weeks ago, are now much more aligned.
With the market trading better on the Iran situation, will we once again see breadth weaken, with the larger-cap technology sector leading the way? We suspect that may be the case, but we are cautious that the recent rally could be short-lived. Keep an eye on the key moving averages that are currently acting as support and resistance for clues.
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