Gold and silver plunge as Iran war damps rate-cut hopes

Gold sank for a seventh session as the escalating war in the Middle East drove oil prices higher and reduced prospects for a US interest-rate cut in the near term. Silver slumped more than 13%.

Gold slid as much as 6.6%, with the decline putting it on track for its longest losing streak since 2023.

Read: Treasury bets on export earnings from gold to offset higher oil imports

Roughly three weeks into the war, soaring crude and gas prices are raising inflationary risks, which make rate cuts by the US Federal Reserve and other central banks less likely. That’s a headwind for the metal, which doesn’t pay interest.

Oil extended gains on Thursday following attacks on some of the Middle East’s most important energy facilities.

A day earlier, the Fed held interest rates steady and projected just one cut this year, with chair Jerome Powell saying a reduction would be dependent on slower inflation.

Read: Fed holds rates steady

“It’s an interest rate and oil story here,” said Bart Melek, global head of commodity strategy at TD Securities. “People are worried we will get slower growth and inflation, with the Fed and others tightening policy.”

Global stocks and bonds also sold off amid the escalating Iran war and surging energy prices. That forced some investors to sell their positions in precious metals to raise cash, according to Melek.

Shares of gold producers tumbled and are now in the red for this year.

And VanEck Gold Miners ETF, the world’s largest exchange-traded fund tracking gold mining companies, erased this year’s gains.

Gold’s performance since the Iran war broke out mirrors its decline through mid-2022, when Russia’s invasion of Ukraine caused an energy price shock that rippled through global markets.

While volatility in precious metals has calmed somewhat compared with the wild price swings in January, fluctuations have scared off some investors seeking a haven.

Gold-backed ETFs, a popular way to hold the metal for Western retail and institutional investors, have seen persistent outflows in recent weeks, weighing on prices.

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ETF demand for gold tends to be particularly sensitive to interest-rate changes.

Recent selloffs in gold and silver have been met by a bout of strong retail buying of physical bars and coins, said Daniel Marburger, managing director at StoneX Bullion, which sells billions worth of precious metals each year.

Bullion is still up more than 6% so far this year, though upward momentum has stalled in recent weeks.

Spot gold was down 5% to $4 579.63 an ounce a little before noon in New York on Thursday.

Silver slipped 7.8% to $69.52. The Bloomberg Dollar Spot Index fell 0.3%.

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