Silver and Gold Rebound on Trump's Hormuz Taco But ETFs Shrink 4% for the Month

Gold and silver prices rebounded significantly on Monday, recovering from sharp declines caused by liquidation in major gold ETFs and geopolitical tensions centered on the Strait of Hormuz. Gold fell as low as $4,100 per ounce early Monday but climbed back to within $10 of the weekend’s $4,500 level following US President Donald Trump's announcement of a delay in military action against Iran, which helped ease oil prices and restored confidence in global markets. Silver also erased a 12.4% drop, bouncing back to around $61 per ounce. Large ETF outflows drove the initial price crashes, with SPDR Gold Trust (GLD) and iShares Gold Trust (IAU) shrinking by 4.0% and 4.4% respectively since the US-Israel conflict with Iran began about three weeks ago. Together, these funds liquidated 66.3 tonnes of gold this month—the largest monthly outflow since March 2021. Silver-backed ETF SLV similarly dropped 4.7%. The market has priced in declining liquidity and credit conditions driven by war-related energy shocks, as noted by MKS Pamp’s head of metals strategy, Nicky Shiels. Market participants remain wary of lingering volatility from geopolitical risk and energy supply constraints, with crude oil still nearly 37% above pre-conflict levels and European natural gas prices around 70% higher due to ongoing LNG supply disruptions. Meanwhile, despite rising inflationary pressures, interest-rate cuts by the US Federal Reserve before year-end now appear unlikely, maintaining tightening monetary policy expectations. This environment increases downside risk for precious metals, historically viewed as liquidity proxies during acute crises. The recent price rebound coupled with ETF outflows suggests a fragile recovery prone to sudden shifts in sentiment, especially if geopolitical tensions escalate again or energy markets destabilize further. Traders should monitor upcoming US-Iran diplomatic developments, central bank communications, and commodity price moves closely as key near-term catalysts. The so-called 'TACO trade' reflecting expectations of a Trump de-escalation is now under question, underscoring broader uncertainty about the sustainability of the metals rebound.