Gold has faced headwinds since the joint U.S.-Israeli assault on Iran in late February. Now, economic concerns are taking over.
Bond.az analysts note that a sharp oil price jump fuels inflation fears. Central banks like the Fed and ECB may hike rates again.
Non-yielding gold underperforms when rates rise. Government bond yields have surged recently.
UBS analysts Dominic Schnider and Wayne Gordon say: "The inverse relationship between U.S. real yields and gold has reasserted itself."
The correlation between 2-year Treasury yields and gold is now negative, they add.
"Markets are rediscovering opportunity cost. Investors are rotating back to money market instruments," the analysts argue.
A stronger U.S. dollar also makes gold more expensive for foreign buyers. The dollar index rose 1.3% over three months.
Spot gold fell 1.0% to $4,524.75 an ounce on Tuesday, slumping over 12% in three months.
However, UBS sees supportive drivers reasserting in the medium term: high global debt, U.S. fiscal deficits, and reserve diversification.
"Oil prices likely moderate toward year-end, allowing the Fed to cut rates in December," they predict.
