Gold futures plummeted to a one-month low on Thursday, falling to $4,588.70 an ounce, as the conflict in Iran reshapes expectations for global interest rates and capital flows, according to reports from Kitco News and the Modern York Post.
The decline marks a significant reversal for the precious metal, which had rallied earlier in the year amid heightened geopolitical tensions following the outbreak of the war. However, analysts now suggest the conflict is simultaneously pricing in inflation and diminishing the likelihood of near-term interest rate cuts by central banks.
The war’s impact on energy markets is a key driver of this shift. Iran’s blockade of the Strait of Hormuz, a critical waterway for global oil supplies, has pushed crude prices above $100 a barrel. This surge in energy costs is fueling concerns about accelerating inflation, as national average gasoline prices have already risen to $3.88 a gallon, according to AAA.
“The conventional wisdom says wars are supposed to be bullish for precious metals, but the Iran conflict is doing something the textbooks don’t cover – it is pricing in inflation and pricing out rate cuts simultaneously,” Tracy Shuchart, senior economist at NinjaTrader, told the New York Post.
This inflationary pressure is leading market participants to believe that the Federal Reserve will be unable to lower interest rates in the foreseeable future. Ken Mahoney, CEO of Mahoney Asset Management, stated that “There is no chance the Fed is going to be able to cut rates and that is being realized by metals markets today, and that is why the selling in gold is so pronounced.”
Beyond the impact on interest rate expectations, a broader liquidity crunch is also contributing to the sell-off in gold. Reports indicate a crisis of confidence in private equity firms and their investment funds, particularly in the United States. Wealthy investors are withdrawing capital from these firms, creating a need for liquid assets, prompting sales of gold holdings.
Analysts at Heraeus noted in a Kitco News report that while gold typically benefits from crises, the current demand for immediate capital is outweighing its safe-haven appeal. The situation is further complicated by a general tightening of financial and commodity markets, forcing investors to liquidate assets to meet pressing obligations.
Federal Reserve Chairman Jerome Powell has acknowledged the risk of persistent inflation, signaling a reluctance to ease monetary policy. The central bank held interest rates steady on Wednesday, a move that reinforced the expectation of a prolonged period of higher rates.
Silver futures have also been affected, falling to $70.39 from a recent high of around $120. The combined pressure from inflation concerns, tighter monetary policy, and liquidity demands is creating a challenging environment for precious metals, despite the ongoing geopolitical instability in the Middle East.
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