Silver and Gold Crash as Iran War Kills Interest-Rates Cuts

Gold plunged over 5% to $1,600 per ounce on Thursday, marking a sharp reversal from January’s record highs, as major central banks including the US Fed, Bank of Canada, ECB, BoJ, and BoE unanimously paused interest rate hikes amid escalating Iran-Israel conflict and rising geopolitical uncertainty. Silver suffered an even steeper fall, dropping as much as 21.7% this week to $65.55, hitting a six-week low, exacerbated by heavy investor outflows from major ETFs such as SLV and GLD, which shrank to their smallest size in months. Central bankers highlighted heightened economic and inflation uncertainty, with the ECB and BoC citing elevated energy prices and geopolitical risks. Fed Chair Jerome Powell acknowledged conflicting pressures between inflation risks and employment concerns, signaling a prolonged pause in rate changes, with market expectations now pushing the timing of any rate cuts out to mid-2027—around a year later than pre-war forecasts. Historical analogues were invoked, noting this drop as one of gold's steepest falls since 1980, underlining the challenges from tight monetary policy and war-induced volatility. Market implications include renewed downside risks for precious metals amid hawkish central banks and energy price surges. The conflict’s persistence threatens further oil supply shocks, complicating inflation outlooks and delaying policy easing. Central bank selling of gold reserves to support national currencies or finance oil imports adds additional downward pressure. Traders should watch geopolitical developments closely alongside central bank communications for signs of a policy pivot or escalation in safe-haven demand. While consensus is bearish short term due to rate stability and macro uncertainty, contrarian perspectives note that if the Middle East conflict intensifies and triggers broader supply chain disruptions, renewed safe-haven buying in gold and silver could quickly re-emerge, especially if markets price in eventual Fed easing beyond 2027.