IT WAS A CEASEFIRE FAIRYTALE AND IT ENDED QUICKLY
Global markets started the new week under rising geopolitical stress once again. The failure of the talks between the US and Iran, followed by blockade steps targeting the Strait of Hormuz and Iranian ports, quickly erased the short-lived ceasefire optimism. Markets are now turning back to pricing in the worst-case scenario. The first reaction was familiar. The dollar strengthened and oil moved higher again. But the picture in precious metals is more striking. Even though geopolitical risk is rising, gold is still not getting strong support from it, and each metal is moving on its own path. In early trading, gold was down 0.31% at $4,731, while silver was down 1.64% at $74.59. In contrast, platinum was up 0.19% at $2,049, and palladium was up 0.81% at $1,533. The reason for the pressure on gold is quite clear. Oil moving back above $100 keeps bringing inflation risk to the front, even more than war risk itself. This creates a picture that makes it harder for the Fed to cut interest rates. In other words, the market is not reading today’s geopolitical tension as “gold should rise,” but rather as “if inflation picks up again, rates may stay higher for longer.” That is exactly what is weighing on gold. The stronger dollar is adding to this pressure. A strong dollar makes gold more expensive for investors using other currencies. As a result, safe-haven demand caused by the war is staying behind the pressure coming from interest rates and the dollar.
The sharper decline in silver also shows that this pressure is being felt more clearly there. At the same time, the positive performance in platinum and palladium shows that the market is not pricing all precious metals in the same way. Some metals are still holding up better thanks to supply conditions and industrial demand. Still, in the bigger picture, the gold story is not completely broken. The recent increase in central bank gold buying, the decision by some countries to bring their reserves back home, and the growing debate around reserve security all show that gold still has a strong strategic role in the long term.There is pressure in the short term, but structural interest remains in place over the long term.
So how long will markets keep focusing not on geopolitical risk itself, but on the inflation shock that this risk may create?