Gold (GC=F) futures trimmed losses to drop 3% on Monday morning as the precious metal has shifted from a strong momentum trade earlier this year to a losing bet amid the Middle East conflict.

Spot gold tumbled to about $4,288 per ounce, following a more than 10% decline last week, its worst weekly performance since 1983.

"This is an extremely brutal flush," Greg Shearer, head of base and precious metals strategy at JPMorgan, said on Friday.

"But from our perspective, what it's telling us is more about gold getting caught up in a contagion risk of a sell everything trade," he added.

Read more: Thinking of buying gold? Here's what investors should watch for.

Gold and other precious metals have been in sell-off mode as surging oil prices stemming from the Middle East conflict have boosted inflation expectations and fueled concerns that the Federal Reserve and other central banks may not cut rates this year. In Europe, which relies heavily on oil imports, officials have floated the possibility of a rate hike.

A firm US dollar (DX-Y.NYB) and rising bond yields have pushed gold prices down more than 14% since the start of the war, as the non-yielding asset has become less attractive.

"In the near term, a stronger US dollar and gold's high liquidity can make it a source of funds during stress episodes," wrote Ewa Manthey, commodities strategist at ING, last Friday.

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While gold started the year with momentum following a historic 65% gain in 2025, investors have become increasingly worried that the structural support from central banks, which has underpinned the market, may be shifting amid liquidity constraints.

"I think there's concern in the market that the combination of economic, energy, and FX pressures could trigger a sea change in central bank gold flows and buying behavior," JPMorgan's Shearer said.

Longer term, though, JPMorgan analysts are still bullish.

"The longer the energy disruption goes on and the more sizeable the inflationary and, importantly, growth impacts become, we still think the backdrop for gold will likely quickly flip materially bullish," the analysts wrote last week.

Economic deterioration would amplify "a sharp shift towards Fed easing as the employment side of the Fedโ€™s dual mandate takes precedence," they added.

The broader metals complex was also hammered, with silver (SI=F) and copper (HG=F) seeing sharp drawdowns amid concerns surrounding demand destruction.

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.

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