The recent disruptions in the Strait of Hormuz have sparked global inflation concerns, driving up oil prices and impacting the precious metals market. As Brent crude futures climb to $93 per barrel, gold and silver face pressure from rising US Treasury yields and a stronger dollar.
Gold was trading flat at $4,075 per ounce on Thursday evening, while silver rose by 1% to $63.5 per ounce. The US 2-year Treasury yield increased to 4.131%, its highest since February 2025, reflecting heightened expectations of Federal Reserve rate hikes. This rise in yields has reduced the appeal of non-yielding assets like gold and silver.
Ajit Mishra, senior vice-president - research at Religare Broking, noted that the recency bias from last year's strong performance has faded, leading to muted fresh buying and ETF outflows. In May, gold ETFs saw net outflows of ₹725 crore, while silver ETFs recorded outflows of ₹2,133 crore.
“The disruptions in the Strait of Hormuz have reignited global inflation concerns by pushing up oil prices.”
Anindya Banerjee, head of commodity and currency research at Kotak Securities
Naveen Mathur, director - commodities and currencies at Anand Rathi Shares & Stock Brokers, highlighted a "sell on rise" approach in the metals market, with the near-term outlook turning bearish. He emphasized the importance of the dollar index, stating that a recovery in precious metals is unlikely as long as it remains above 100.
Gold has already breached its 200-day moving average of $4,088 and could drift towards $3,800, according to Mathur. Silver may also decline to $55-60 levels. Mishra advises investors who accumulated positions last year to hold, while suggesting gradual accumulation for new investors, with potential returns over a 2-3 year horizon.
“Higher interest rates and a stronger dollar reduce the attractiveness of non-yielding assets like gold and silver.”
Ajit Mishra, senior vice-president - research at Religare Broking
Background
The disruptions in the Strait of Hormuz have historically led to volatility in global oil markets, affecting inflation and currency valuations. The current situation underscores the interconnectedness of geopolitical events and financial markets.
Looking ahead, investors should monitor the dollar index and US Treasury yields, as these factors will significantly influence the trajectory of gold and silver prices. The ongoing geopolitical tensions and their impact on oil prices will also be crucial in shaping market dynamics.
