Bullion capped by inflation concerns: Analysts
Gold and silver prices are expected to remain under pressure in the short term as central banks maintain a hawkish posture and delay interest rate cuts in response to heightened crude oil prices, analysts said.
While crude oil-driven inflation traditionally boosts precious metals, analysts warn that hawkish monetary policy responses could cap near-term gains for bullion.
According to experts, the bullion market’s reaction to oil price shocks now depends less on inflation figures alone and more on how central banks respond. “Historically, sharp rallies in crude oil prices have triggered inflationary pressures, as witnessed during the 1970s oil embargo and several Middle East crises,” said Manav Modi, Commodities Analyst at Motilal Oswal Financial Services Ltd (MOFSL).
Usually, gold and silver see a strong upward momentum during inflationary pressures triggered by a spike in crude prices. However, gold and silver have defied established market trends during the recent escalation in the US-Iran conflict, which has threatened nearly a fifth of the world’s energy supplies moving through the Strait of Hormuz. The fresh escalation in the Middle East has led to sharp volatility across commodity markets since last week. Brent crude was trading near $68 a barrel before the conflict in West Asia in late February and surged to as high as $126.41 per barrel by mid-April amid the peak hostilities.
Later, oil prices retreated to around $70 after tensions eased between the US, Israel and Iran, before climbing back to about $90 a barrel. The sharp swings in energy markets coincided with a steep correction in precious metals. Gold futures, after scaling a record $5,706 an ounce earlier this year, have fallen about 29 per cent to around $4,070 an ounce.
Silver futures have declined more than 52 per cent from their all-time high of $124.25 an ounce hit on January 29. The white metal is currently hovering around $59 an ounce globally.
Rather than sparking a runaway precious metals rally, the recent oil supply disruptions have instead raised expectations that central banks across major economies will keep monetary policy tighter for longer, effectively capping bullion’s short-term gains.
