Gold, silver prices plummet over 3% today: Here's why
What's the story
Gold and silver rates have witnessed a sharp decline today, falling by over 3%. The drop comes after two consecutive sessions of gains. The fall is mainly due to investors weighing the possibility of a diplomatic resolution to the ongoing US-Iran war. COMEX gold rate has fallen by over 1% to trade above $4,700 per ounce while COMEX silver prices plummeted by 3% during Asian trading hours on Thursday.
Market response
US plans direct talks with Iran
The White House has announced plans for direct talks with Iran, despite Tehran's accusations against Israel of violating a recently established ceasefire in Lebanon and continued attacks on Gulf nations. Oil prices rebounded after their biggest single-day fall since April 2020, while equities rose and the dollar weakened on Wednesday. These factors have supported gold prices as it is priced in the US currency.
Economic implications
Interest rates and gold performance
The US-Iran war, now in its second month, has pushed energy prices higher and raised inflation concerns. This increases the possibility of central banks delaying rate cuts or even considering rate hikes. Such a scenario could pose a challenge for gold as it usually performs better in low-interest-rate environments. However, an extended conflict could slow economic growth, weaken the labor market, and justify lower interest rates.
Investor advice
What should investors do?
Aksha Kamboj, Vice President of India Bullion & Jewellers Association and Executive Chairperson at Aspect Global Ventures, said geopolitical uncertainties have increased gold demand as a hedge. He advised investors to stagger their investments instead of making one big purchase due to likely periodic volatility. For silver, Kamboj noted its price is more volatile than gold, advising investors to use corrections in silver prices for buying instead of peaks.