The Middle East conflict, involving the United States and Israel against Iran, has sparked a severe risk-off mood globally. This initially resulted in the sharp rise in demand for safe-haven assets like gold and silver, but the uptrend has remained.
Gold prices in the domestic spot market have risen by ₹3400 to ₹1,62,029 on a month-to-date basis as of close on March 4. However, silver prices have slumped a whopping ₹7000 to ₹260,900 since the beginning of the US-Iran war over the weekend, indicating investor preference for gold over silver during times of conflict.
The analysts also prefer gold over silver. Manav Modi, Commodities Analyst, Motilal Oswal Financial Services (MOSL), said precious metals act as great portfolio diversifiers, but gold will have more buying interest than silver, as, unlike the white metal, which also has industrial usage, gold is a traditional safe haven.
“If we see growth impact and escalations, riskier assets, including industrial metals like copper and silver, could see limited gains coming in,” Modi opined.
Against this backdrop, definitely gold share or a weightage in a portfolio could be a bit higher than silver, according to the MOSL expert.
Unlike gold, silver also has a higher beta, said Nirpendra Yadav, Sr. Commodity Research Analyst at Bonanza. “It tends to gain more on the upside but also fall harder if risk sentiment improves.”
Why are gains in gold prices limited?
On a more objective note, in a black swan event such as this, gold prices have also faced sharp gyrations. After opening on a positive note today, MCX gold prices came under pressure and traded in the red at the ₹160,000 mark.
The capped upside can be attributed to inflation worries on rising crude oil prices and the strengthening US dollar.
Traders have priced in a roughly 80% chance of more than one quarter-point rate cut by the Fed this year, after fully pricing in two cuts as recently as Friday, stated a Bloomberg report.
The inflationary consequences of the conflict — higher oil prices — are working against gold by pushing real yields and the US dollar higher,” explained NS Ramaswamy, Head of Commodity & CRM, Ventura.
Should investors therefore consider buying the US dollar, which has received a fresh fillip in the ongoing Middle East conflict?
“Gold has already surged to record highs this year, reflecting not only geopolitical anxiety but also concerns over US fiscal slippage and the dollar’s medium term credibility. This makes gold a cleaner hedge against prolonged conflict, oil-led inflation, and renewed debate around US debt sustainability,” said Rajeev Sharan, Head – Criteria, Model Development & Research, Brickwork Ratings.
While he believes that the US dollar can still benefit tactically from a flight to liquidity, but its safe-haven role is more fragile in a world of de-dollarisation narratives and elevated US deficits.
For investors seeking protection from both geopolitical and policy risks, a calibrated overweight in gold, complemented by selective short-duration US paper, appears the most resilient mix, he advised.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
