Gold prices tumbled more than 5% after a four-day rally, as traders balanced escalating Middle East tensions against a strengthening dollar and rising yields. Spot gold fell to $5,034.22 an ounce in New York trading, marking a significant reversal from recent gains.

The conflict has already driven energy prices higher, raising inflation concerns that could keep the Federal Reserve from cutting interest rates. Higher rates typically hurt non-yielding assets like gold, while a stronger US dollar makes the metal more expensive for foreign buyers. This combination of factors outweighed the traditional safe-haven appeal of gold amid regional instability.

Traders now face a complex market environment where geopolitical risks compete with monetary policy expectations. The sharp decline highlights how quickly sentiment can shift when economic fundamentals reassert themselves over short-term political concerns. Gold's role as a hedge appears diminished when inflation and interest rate dynamics dominate market thinking.