Precious metals drop as Hormuz risks lift rate expectations
Gold and silver prices fell as renewed US-Iran military strikes raised fears of energy-driven inflation, pushing investors to favor interest-bearing assets over non-yielding safe havens.
Comex gold futures dropped $59 to an intraday low of $4,081 per troy ounce on Friday, putting the metal on track for a weekly decline of 0.20%. Silver futures followed, falling nearly $1.50 to $59.25 an ounce and extending their weekly loss to 1.24%. The losses come after a strong previous session, capping off a volatile week for the sector.
The immediate catalyst was two consecutive days of US military strikes on targets in Iran. This escalation followed attacks on vessels navigating the Strait of Hormuz, one of the world's most critical oil transit chokepoints. US President Donald Trump stated on Friday that Iran had requested to continue talks, but he explicitly warned that the June ceasefire was finished. "The Islamic Republic of Iran has asked us to continue 'talks.' We have agreed to do so, but the United States has stated to them, in no uncertain terms, that the Ceasefire is OVER!" Trump wrote on Truth Social.
For precious metals traders, the conflict is reshaping the traditional safe-haven calculus. While gold usually rallies during periods of geopolitical uncertainty, the specific risk of disrupted energy shipments through the Strait of Hormuz is stoking fears of sustained inflation. Higher energy prices increase the probability that central banks will maintain restrictive monetary policy, making interest-bearing assets like bonds more attractive than non-yielding bullion.
This rate sensitivity is reflected in current Fed fund pricing. Minutes from the Federal Reserve's June policy meeting indicated that while only a minority of officials supported an immediate rate hike, there is growing alarm over inflationary pressures. Consequently, markets have adjusted their expectations and are now pricing in at least one Fed rate hike by the end of 2026.
The pressure in international markets weighed heavily on domestic Indian exchanges. Near-month MCX gold futures fell nearly ₹2,000 to an intraday low of ₹1,43,324 per 10 grams. The contract has dropped in three of the last four sessions, resulting in a 2.6% decline so far this week. MCX silver futures mirrored this weakness, plunging nearly ₹5,000 to ₹2,21,500 per kilogram. This weekly drop of ₹14,316 per kilogram effectively erased nearly all of silver's prior-week gains of ₹16,000 per kilogram.
Market participants are now looking ahead to next week's US inflation data for concrete signals on price pressures. Additionally, upcoming testimony from Federal Reserve Governor Kevin Warsh will be closely scrutinized for any shifts in the central bank's interest rate outlook.
