Gold, Silver Prices Plunge: Will Crude Oil's Rise to $120 per Barrel Trigger 10% Crash?

Gold and Silver Prices Continue to Struggle Amid Ongoing US-Iran War Tensions

The ongoing US-Iran war has resulted in gold and silver prices remaining under pressure, with a stronger US dollar and reduced safe-haven demand continuing to weigh on precious metals. According to market experts, geopolitical tensions generally boost gold as a safe-haven asset, however, in the current environment, rising oil prices are reinforcing inflation expectations, keeping real yields elevated and supporting the US dollar, which is capping upside in gold and silver.

The COMEX gold rate rose marginally to $4,800 per ounce after a two-day decline, while the COMEX silver rate today was trading near $77 per ounce level on Tuesday. Since the beginning of the US-Iran war, gold prices have corrected over 8%, while silver has fallen over 16%. This significant decline is largely due to the fact that silver is more sensitive to industrial demand and overall risk sentiment.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The US initiated a naval blockade of the Strait of Hormuz, and President Donald Trump said Iranian officials had reached out to his administration expressing a willingness "to work a deal." Meanwhile, Iranian President Masoud Pezeshkian was quoted as saying by Bloomberg that Tehran remained open to continuing peace talks within the bounds of international law. Oil prices fell to below $100 a barrel, while equities gained on Monday, and the dollar index slipped 0.2%, lending support to gold, which is priced in the US currency.

The drop in energy prices helped ease some inflationary pressures that have weighed on bullion since the conflict began over six weeks ago. This has prompted traders to anticipate that central banks may keep interest rates higher for longer or even raise them further — a negative factor for non-yielding assets. However, concerns about potential energy supply disruptions and economic strain persist, particularly as the US blockade of Hormuz intensifies pressure on Iran.

The US Navy is working to restrict vessels from accessing Iranian ports and coastal routes through the key waterway. With tensions still elevated, US money markets continue to price in less than a 20% probability that the Federal Reserve will cut interest rates by December.

Kaynat Chainwala, AVP - Commodity Research, Kotak Securities, believes that if US naval measures significantly disrupt Iranian crude exports and push oil sustainably above $120/bbl, inflationary pressure would likely strengthen the "higher for longer" interest-rate narrative, keep the dollar firm, and maintain downside risk for precious metals. Chainwala further noted that under this scenario, further declines in gold are possible, with silver expected to be even more volatile.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

On the other hand, if oil prices ease below $90, it may provide strong support to precious metals. In such a case, gold could rally above $5,000, with silver likely to climb past the $80 mark.

Kaveri More, Commodity Technical Research at Choice Broking, highlighted that if gold breaks below the crucial support level of 1,49,650 on MCX, the selling pressure may intensify further, dragging prices towards 1,44,930 and potentially 1,39,200 in the coming sessions. On the silver prices outlook, More added that the white metal is trading around 238,100, but continues to struggle amid persistent geopolitical uncertainty while facing resistance near 247,000 (50DEMA).

"A sustained move below the immediate support of 233,600 could trigger fresh weakness, with the next downside levels seen at 224,000 and 219,000," More said. More further recommended investors to remain cautious in the near term, as bullions continue to face volatility unless geopolitical tensions ease and the dollar retreats from current elevated levels.