Gold and Silver Plunge as Iran War Fuels Inflation Fears
Escalating tensions surrounding the conflict involving the US, Israel, and Iran have triggered a significant sell-off in financial and commodity markets. Precious metals, traditionally seen as safe-haven assets, are experiencing a particularly sharp decline, bucking historical trends.
Precious Metals Experience Dramatic Losses
The value of gold fell nearly eight percent to $4,126 per troy ounce on Monday, erasing all of this year’s gains. Silver followed suit, dropping more than eight percent to $62.2 an ounce. This downturn comes after a period of strong performance for precious metals earlier in the year, driven by geopolitical uncertainty.
Global Stock Markets Also Decline
The impact of the escalating conflict extends beyond precious metals. World stock markets are also experiencing substantial losses. Japanese stocks lost almost 3.5 percent of their value, and similar declines were reported by the Hong Kong stock exchange, marking their largest losses since last year. European markets also opened lower, with the pan-European Stoxx 600 index losing 1.8 percent and reaching a four-month low. Asian stocks are down for a third consecutive day, nearing a correction – a 10 percent drop from their previous highs.
Inflation and Interest Rate Concerns Drive Sell-Off
Investors are increasingly concerned about the potential for simultaneous inflation and slowing economic growth, a scenario known as stagflation. The conflict in Iran, particularly Iran’s blockade of the Strait of Hormuz – a vital waterway for 20% of the world’s energy supply – has pushed oil prices above $100 a barrel. National average gasoline prices have jumped to $3.88 a gallon, according to AAA, and analysts warn of further price increases across the consumer market.
These inflationary pressures are leading to expectations that central banks will be forced to raise interest rates, which is unfavorable for gold and silver as they do not offer a yield in the form of interest or dividends. “The conventional wisdom says wars are supposed to be bullish for precious metals, but the Iran conflict is doing something the textbooks don’t cover – it is pricing in inflation and pricing out rate cuts simultaneously,” Tracy Shuchart, senior economist at NinjaTrader, told The Post.
Iran’s Response and Oil Supply Concerns
The current situation stems from a US ultimatum demanding Iran reopen the Strait of Hormuz within 48 hours. Iran has responded by threatening to close the strait indefinitely if attacked and to target energy infrastructure in the region, including American and Israeli assets. Mohammad Bagher Ghalibaf, Iranian Parliament Speaker, stated on X that critical infrastructure would be considered legitimate targets, potentially leading to sustained increases in oil prices.
Market Volatility and Outlook
Gold and silver have experienced volatility throughout the US-Israel-Iran war, rising initially on safe-haven demand but subsequently declining due to rising oil prices, dollar strength, and concerns about potential interest rate hikes. Although precious metals traditionally benefit from geopolitical instability, the unique circumstances of the current conflict – specifically the inflationary pressures and the potential for monetary tightening – are driving a different outcome.
Ken Mahoney, CEO of Mahoney Asset Management, stated that “There is no chance the Fed is going to be able to cut rates and that is being realized by metals markets today, and that is why the selling in gold is so pronounced.”