Markets Tank, Oil Rises Amid Iran War, So Why Are Gold, Silver Down?

Gold and silver prices slipped in international markets on Monday even as geopolitical tensions in the Middle East intensified, leaving many investors puzzled. On the COMEX (Commodity Exchange), gold fell about 1.3 per cent to around $5,090 an ounce, while silver dropped more sharply, losing over 4 per cent during the session.

Precious metals typically rally during periods of conflict as investors move money into safe-haven assets. But this time, the surge in oil prices and the global equity sell-off triggered by the conflict involving Iran have instead pushed some investors to sell gold and silver.

Here are the major reasons that led to the fall in gold, silver:-

Profit booking after a strong rally: One key reason for the decline is profit booking. Gold had already rallied strongly in the months leading up to the current crisis, leaving many investors sitting on sizeable gains. As stock markets came under pressure following the jump in oil prices, some investors sold part of their bullion holdings to raise cash and offset losses elsewhere. This kind of selling is not unusual during periods of market stress, when liquidity becomes a priority.

Stronger dollar and rising yields weigh on metals: At the same time, the US dollar has strengthened as investors rushed to hold cash during market turbulence. A stronger dollar tends to weigh on gold because it makes the metal more expensive for buyers using other currencies. Rising US Treasury yields have also reduced the appeal of non-yielding assets such as gold. Expectations that the Federal Reserve could delay interest-rate cuts if inflation remains elevated have further added to the pressure.

Higher margins squeeze speculative trading: Another factor affecting bullion markets is tighter trading conditions. Earlier, the CME Group raised margin requirements for gold and silver futures amid heightened volatility. Higher margins mean traders must keep more cash to hold leveraged positions, prompting some speculative players to exit the market. This has reduced short-term momentum in precious metals.

Rumours of central banks selling gold: Market chatter about possible central bank gold sales has also weighed on sentiment. If central banks sell part of their reserves to raise liquidity during market stress, it increases supply in the market -- a factor that can pressure prices even if demand remains strong.

Iran-Israel War: Volatility Likely To Continue

Analysts say the recent decline does not necessarily signal a shift in gold's longer-term outlook. Instead, the current moves appear to reflect short-term volatility, with investors balancing safe-haven demand against the need to raise liquidity as global markets react to the sharp jump in oil prices.

For now, precious metal prices are likely to remain sensitive to developments in the Middle East. The surge in oil prices has already rattled global markets. Benchmark Brent crude jumped roughly 17 per cent to above $105 a barrel, while US WTI crude climbed close to $107, as fears of supply disruptions grew amid tensions in the region. Markets are particularly concerned about potential disruptions to shipments through the Strait of Hormuz, one of the world's most critical oil transit routes. The surge in energy prices has rattled global equities and raised fresh concerns about inflation.