Two weeks into the latest conflict, gold value has surprised with substantial losses. Several factors can explain the lack of upward momentum, including expectations for higher interest rates across the globe.
The RBA raised benchmark policy rates for a second straight time earlier this week, pushing them to their highest since April 2025, and said that higher energy prices were likely to spur inflation.
The Fed did not act as expected despite pressures from Trump to lower borrowing costs. In a statement, the board noted "implications of developments in the Middle East for the US economy are uncertain".
Powell said Trump's trade and immigration policies have caused instability in the US economy, putting himself at odds with the president who has spent the last year demanding lower interest rates.
He added that the current economic situation, even with the Iran war-induced spike in energy prices was far removed from the "stagflation" of the 1970s – when gold experienced massive growth.
The PCE price index came in lower than expectations in February, but it remained well above the 2% target. That means Treasury yields will stay higher for longer, which bodes ill for gold.
Central banks could still provide a strong, structural support for the prices though. The PBOC extended its gold buying spree for a 15th month in January, indicating an insatiable appetite for safe havens.
Massive debt loads
Iran hit a Saudi refinery on the Red Sea and setting Qatari LNG facilities and two Kuwaiti oil refineries ablaze as it struck back following an Israeli attack on its main natural gas field.
The country is capable of sharply escalating its campaign against energy infrastructure in the Gulf, analysts have warned. Trump requested that there be no further such attacks on such targets.
"It does not matter how many you launch as long as you maintain a credible threat," said Muhanad Seloom at the Doha Institute for Graduate Studies. "It takes one successful drone to shatter a sense of security."
Dubai crude oil prices surpassed $166 a barrel to a new record high on Thursday, according to Platts. Brent and West Texas intermediate Cushing's are trading around $100 after historic runs higher.
The Pentagon has asked the White House to approve a more than $200 billion request to Congress to fund the war in Iran, according to a senior administration official, which has sparked intense debate.
That came on top of a near record high budget deficit for fiscal year 2025. Analysts have been warning about the unsustainable fiscal path, which jeopardise the dollar's long-established exceptionalism.
Wells Fargo Securities wrote that oil prices as high as $130 would increase the risk of economic contraction. In a nutshell, gold is poised to stage a rally if energy costs either rise or fall significantly going forward.
Substitution for silver
China's appetite for silver lifted overseas purchases to an 8-year high at the start of 2026. That has pushed local prices well above international benchmarks, whittling down already-low exchange stockpiles.
Demand is expected to remain steady in 2026 with gains in retail investment offsetting most of the losses across industrial, jewellery and silverware demand, the Silver Institute industry association said last week.
Industrial silver fabrication is forecast to decline to a four-year low, driven by thrifting and outright substitution away from the metal in the photovoltaic sector, the association said.
Solar panel producers are intensifying efforts to replace it with alternatives with their profit margins under pressure from production overcapacity in China and soaring silver prices.
China's top solar panel makers have forecast losses of up to 38.4 billion yuan for 2025, underscoring the uphill battle to rein in excessive price competition under the country's "anti-involution" campaign.
Though oil supply disruption may encourage faster adoption of solar power, many countries' grids are yet equipped for high volumes of decentralised energy, leading to long queues for connection.
In this case, we are more bullish on gold this year as a hedge to increased trade frictions and cross-border military conflicts. That being said, it is recommended to go long on signs of de-escalation in Iran.
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