Gold, Silver Prices Rise on Higher Crude Oil Prices
New DelhiAnalysts stated that gold and silver prices are expected to remain under pressure in the short term as central banks take a hawkish stance and postpone interest rate cuts in response to rising crude oil prices. While crude-fueled inflation has traditionally supported precious metals, analysts warn that hawkish monetary policy responses could limit bullion’s short-term gains.
According to experts, the reaction of the bullion market to oil price shocks now depends less on inflation figures alone and more on how central banks react. “Historically, sharp rises in crude oil prices have triggered inflationary pressures, as seen in the oil embargo of the 1970s and many Middle East crises,” said Manav Modi, Commodity Analyst, Motilal Oswal Financial Services Ltd (MOFSL).
Generally, gold and silver see strong upward momentum during inflationary pressures triggered by the rise in crude oil prices.
But gold and silver have defied established market trends during the recent escalation of the US-Iran conflict, which threatens nearly a fifth of the world’s energy supplies passing through the Strait of Hormuz.
The new rise in the Middle East has led to sharp fluctuations in commodity markets since last week.
Brent crude was trading around US$68 per barrel before the conflict in West Asia in late February, and rose as high as US$126.41 per barrel in mid-April, at the height of the conflict.
Later, as the tension between the USA, Israel and Iran decreased, oil prices dropped to around 70 dollars, then rose to around 90 dollars per barrel.
Sharp fluctuations in energy markets coincided with a sharp correction in precious metals. Gold futures are down nearly 29 per cent to around US$4,070 per ounce after reaching a record high of US$5,706 per ounce earlier this year.
Silver futures are down more than 52 percent from their all-time high of $124.25 per ounce on Jan. 29. The white metal is currently trading around US$59 per ounce globally.
Rather than triggering a runaway rally in precious metals, recent oil supply disruptions have raised expectations that central banks in major economies will keep monetary policy tight for longer, effectively limiting bullion’s short-term gains.
According to analysts, the response of central banks to inflation pressures may also affect precious metal price trends in the short term.
The latest flare-up in West Asia has highlighted a divergence among commodity markets. Modi said crude oil maintained its geopolitical premium due to concerns about supply disruptions, while bullion failed to follow this pace, as investors weighed whether higher energy prices would keep interest rates higher for longer.
According to Modi, long-term outcomes vary as persistently high oil prices worsen fiscal deficits, increase debt burdens and create macroeconomic imbalances, ultimately supporting safe-haven demand for precious metals.
He explained that “not all geopolitical conflicts have the same impact on the market.”
The Russia-Ukraine conflict was largely regional and had a relatively limited long-term impact on oil prices.
“In contrast, tensions involving the Middle East directly threaten global energy supplies through key chokepoints such as the Strait of Hormuz, making crude oil much more sensitive,” Modi said.
According to Jateen Trivedi, Vice President, Commodity and Currency Research Analyst at LKP Securities, the market’s response to higher crude oil prices now depends on how global central banks respond rather than just inflation.
“If higher oil prices increase inflation expectations and lead the Fed to take a hawkish stance or delay interest rate cuts, bullion prices could remain under pressure in the short term.
“However, once higher rates are fully priced in and inflation concerns remain, gold and silver are regaining strength as investors look for inflation hedges,” he said, adding that bullion has not lost its safe-haven appeal despite the recent correction, with some investment flows shifting to technology and AI-related sectors.
Choice Broking Commodity Analyst Kaveri More said silver’s dual role as both a precious and industrial metal makes it more vulnerable than gold during periods of rising energy prices.
On silver, More said the picture is more complex because the dollar, inflation trends and bond yields also play an important role.
“These macro factors have recently put downward pressure on precious metals, even in the tense geopolitical environment, and silver tends to outperform gold on a relative basis,” he added.
MOFSL’s Manav Modi said silver could still outperform gold, but meaningful outperformance would require stronger industrial demand, especially from copper, zinc and manufacturing-related sectors, as well as a more supportive global monetary environment.
Institutional investment behavior is also becoming more selective, he noted, as higher bond yields attract a greater share of institutional capital into fixed income assets and slow the penetration of ETFs into precious metals.
But he expects institutional allocations to gold and silver to improve once inflation stabilizes and expectations of policy easing due to long-term diversification benefits.
Looking ahead, Modi expects crude oil to continue to be supported and domestic prices to remain in the range of Rs 6,800-8,500 per barrel as long as geopolitical tensions persist.
He said that gold may find support around $4,000 per ounce in global markets, while silver is expected to remain in a wide range between $65-72 per ounce.
To assess the direction of commodity markets, investors should monitor crude oil stocks, developments around the Strait of Hormuz, inflation data, global central bank policy decisions, Treasury bill yields and the US dollar, analysts said.
