Precious metals retreated sharply after US President Donald Trump signalled a major escalation in the Iran conflict, erasing hopes of a near-term resolution to the over month-long war in West Asia.
Fears of prolonged inflation and possibly higher interest rates once again dented investor confidence in safe-haven assets, causing Comex April gold futures to crash $233 per troy ounce to the day’s low of $4,580, erasing most of their recent gains and putting them on track to end a four-day winning run.
May silver futures on Comex also reversed recent gains, falling $6.40 per troy ounce to touch the day’s low of $69.61 earlier in the session.
In the domestic market, April gold futures on MCX crashed ₹6,608 per 10 grams to reach the day’s low of ₹1,47,100. May silver futures on MCX also slipped ₹19,001 per kilogram, falling below ₹2.25 lakh to hit a low of ₹2,24,500.
Trump says Iran will be hit hard
In his latest address on the Iran war, Trump said US forces would continue to strike Iran “very hard” over the next two to three weeks and bring the country “back to the Stone Ages.” He also touted the success of US operations, arguing that Washington’s objectives have so far been met or exceeded.
Investor confidence had been building ahead of Trump’s speech after he earlier said he foresaw the US ending the war with Iran within two to three weeks, regardless of a ceasefire or a deal to reopen the Strait of Hormuz.
However, the shift in tone in Trump’s speech dampened hopes for a quick resolution to the conflict, signalling that tensions in the region could intensify further and energy supply disruptions may persist, which could potentially force global central banks to tighten monetary policies.
Ahead of his rare prime-time address, Trump had said he would consider halting attacks on Iran only if the Strait of Hormuz is reopened. He also said in a social media post on Wednesday that Iran’s “new regime president” had sought a ceasefire with the US, although Tehran has reportedly denied this.
The latest back-and-forth follows Trump’s comments on Tuesday, when he said he expected the conflict to end within two to three weeks, which had sparked a sharp rally in both gold and silver, with prices closing higher over the previous four trading sessions.
The conflict in the Middle East is no longer a regional war, as its impact is being felt globally, with disruptions in crude oil supply forcing many economies to shift to alternatives such as coal, raising concerns over emissions.
Dollar strength compounds pressure on metals
The possibility of intensified attacks on Iran has also pushed the US Dollar Index above 100, adding further pressure on precious metals, as a stronger greenback makes prices more expensive for holders of other currencies.
Crude prices remain near 2022 highs, fuelling concerns about their inflationary impact, which could prompt the Fed to adopt a more hawkish stance and delay any rate cuts this year.
Earlier this week, Federal Reserve Chair Jerome Powell, in a wide-ranging talk at Harvard University, said he sees inflation expectations as well-anchored despite rising energy prices, suggesting the central bank may not need to respond with higher interest rates.
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