(Bloomberg) -- Gold slumped more than 6%, weighed down by a stronger dollar, the prospect of less monetary easing and forced selling tied to the rout in the equities market on the back of the escalating Middle East conflict.

A gauge of the greenback rallied this week while bond yields advanced as traders scaled back their bets on the scope of interest-rate cuts by the Federal Reserve. Inflationary risks from surging energy prices as the Iran war intensifies may force the Fed and its global peers to hold rates steady or even hike them. In fact, traders have now priced in 80% odds of more than one quarter-point rate cut by the Fed this year, after fully pricing in two cuts as recently as Friday.

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A higher dollar and rising bond yields are both negative for bullion as it’s priced in the US currency and pays no interest.

Moreover, gold was under pressure as the deepening selloff in equities Tuesday forced some investors to liquidate metals positions to meet margin calls in other parts of their portfolios, according to commodity strategist Michael Haigh at Societe Generale SA.

“The experiences of 2022, when the outbreak of the war in Ukraine pushed up oil prices and thus inflation worldwide, probably serve as a blueprint here,” Thu Lan Nguyen, head of forex and commodity research at Commerzbank AG, wrote in a note. At that time, the Fed reacted early by raising rates, strengthening the dollar, and gold consequently weakened throughout the year, she said.

Spot gold fell  to $  an ounce as of  in New York. Silver plunged  to $. Platinum and palladium also slumped.

Volatility has been elevated for months in precious metals, partly because rising prices — both gold and silver have soared this year to record highs — and wild intraday swings have pushed some trading firms close to limit on the maximum level of risk they’re permitted to take.

“Rising rates could slow some of the investor rotation that has helped drive gold’s rapid rally through late 2025 and early 2026,” JPMorgan analysts wrote in a note, adding that they expect gold to continue to see volatility as the conflict in the Middle East carries on.

Gold rose at the start of the week as investors fled to less risky assets, and the scope of the war expanded Tuesday. President Donald Trump said the US would continue its military offensive for as long as it takes, while Israel announced a “wave of strikes” targeting Iran’s command centers. Tehran, meanwhile, attacked oil and gas infrastructure and threatened shipping in the strategic Strait of Hormuz.

Even before the US-Israeli attacks on Iran over the weekend, there were signs that US inflation was set to rise. Manufacturing input prices soared in February at the fastest pace since 2022, according to a gauge from the Institute for Supply Management. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon warned that inflation could become a “skunk at a party” for the US economy.

Gold has rallied by almost 20% this year, with demand supported by persistent geopolitical and trade tensions as well as concerns about the Fed’s independence. The revival of investor fears about inflation and currency debasement added fresh impetus to a multiyear rally.

There’s “ample scope” for bullion to challenge a record high above $5,595 an ounce that it hit at the end of January, should the conflict in the Middle East extend for several weeks, Swiss private bank Union Bancaire Privee, UBP SA said in a note. On Monday, the metal closed at its highest level in over a month.

As well as disrupting energy supplies, the war has created bottlenecks for the physical flow of precious metals. The United Arab Emirates, a major conduit for the global gold trade, closed its airspace over the weekend, while several commercial airlines suspended operations in the Gulf region — grounding shipments of gold and silver that are transported in the cargo holds of passenger aircraft.

Representatives of several trading and logistics firms said their metal shipments to and from Dubai had been paused indefinitely. Land transport to airports in other parts of the region is often not possible, as keeping expensive metal on the road is seen as a major risk, the people said, on condition of anonymity because they are not authorized to speak to the media.

--With assistance from Masaki Kondo.

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