US-Iran war: Why investors are dumping silver and buying gold
What's the story
The ongoing conflict in the Middle East, pitting the US and Israel against Iran, has triggered a global risk-off sentiment. This has led to a major spike in demand for safe-haven assets like gold and silver. In the domestic spot market, gold prices jumped by ₹3,400 to ₹1,62,029 on a month basis. However, silver prices have witnessed a massive decline of ₹7,000 to ₹2,60,900 since the start of the US-Iran war over the weekend.
Market preferences
Gold is a traditional safe haven asset
Analysts are also leaning toward gold over silver amid the ongoing conflict. Manav Modi, a commodities analyst at Motilal Oswal Financial Services (MOSL), said precious metals are good portfolio diversifiers but gold will attract more buying interest than silver. He explained that unlike silver, which has industrial usage, gold is a traditional safe haven asset.
Risk assessment
Silver's higher beta could lead to more volatility
Nirpendra Yadav, the senior commodity research analyst at Bonanza, also pointed out that silver has a higher beta than gold. This means it tends to gain more during bullish market conditions but also fall harder when risk sentiment improves. Given this volatility, Modi suggests that investors might want to consider having a larger share of gold in their portfolios compared to silver during these uncertain times.
Market dynamics
Gold prices are also being impacted by rising US dollar
Despite the rise in gold prices, there have been sharp fluctuations due to inflation concerns over rising crude oil prices and a strengthening US dollar. NS Ramaswamy, Head of Commodity & CRM at Ventura, explained that the inflationary effects of the conflict—higher oil prices—are pushing real yields and the US dollar higher, thereby limiting gains in gold.
Investment strategy
Geopolitical tensions and US fiscal slippage worries driving gold prices
Rajeev Sharan, Head of Criteria, Model Development & Research at Brickwork Ratings, said gold has already hit record highs this year. He attributed this to not just geopolitical anxiety but also worries over US fiscal slippage and the dollar's medium-term credibility. While he thinks the US dollar could still benefit from a flight to liquidity tactically, its safe-haven role is more fragile amid de-dollarization narratives and high US deficits.