Gold, silver prices decline amid oil surge, fresh US-Iran tensions
What's the story
Gold and silver prices fell in international markets on Monday, driven by a stronger US dollar and rising bond yields. The decline comes amid rising risk aversion due to escalating tensions in the Gulf region. COMEX gold fell 1.18% to $4,508 per ounce while silver plummeted 2.7% to $75.455 per ounce in early trade after both metals witnessed sharp weekly declines last week.
Market reaction
Geopolitical tensions in West Asia impact global energy markets
The fall in bullion prices is largely attributed to investors reacting to escalating geopolitical tensions in West Asia. New drone attacks have raised fears over energy supplies and inflation. A drone strike caused a fire at a nuclear power plant in the UAE while Saudi Arabia intercepted three drones. The Strait of Hormuz, a key chokepoint for nearly one-fifth of global oil trade, remains heavily restricted amid these developments.
Economic impact
Rising yields put bullion under pressure
The rising oil prices and inflation concerns have triggered a major selloff in global bond markets. US 10-year Treasury yields are at 4.58% after surging by 23 basis points last week, while 30-year yields remain above 5%. Higher yields usually make non-yielding assets like gold and silver less attractive to investors.
Interest rates
US Federal Reserve's interest rate stance adds to bullion pressure
The bullion prices are also under pressure from expectations that the US Federal Reserve could keep interest rates higher for a longer period. Markets are now pricing in nearly a 50-50 chance of another rate hike this year as inflation risks rise due to surging energy prices. Despite gold's traditional safe-haven status, analysts have observed that investors have largely shifted toward the US dollar amid heightened uncertainty.
Domestic market
Domestic bullion prices remain high amid import restrictions
Despite the global trend, domestic bullion prices in India have remained high owing to a recent hike in import duties and restrictions on silver imports. On the Multi Commodity Exchange (MCX), gold futures surged nearly 4% last week to ₹1.58 lakh per 10gm while silver futures gained 3.8% to close at ₹2.71 lakh per kg. Market participants are closely watching upcoming US Federal Reserve policy meeting minutes and key economic data that could impact market sentiment and demand for safe-haven assets like gold and silver.