Gold moved above 4,100 dollars per troy ounce on Monday morning, a rise of about 1 to 2 percent from Friday, while silver climbed to around 59.60 to 59.75 dollars. The trigger is striking. It was not a new war threat that pushed the rate up, but precisely the opposite. For the first time in almost two weeks, the US strikes on Iran stopped, and Tehran too held back. The oil price plunged sharply as a result, with drops of 4 to 7 percent in a day, and that gave gold a boost by way of reduced inflation fear.
For the first time in weeks, a pause instead of escalation
Since early July, the war between the United States and Iran around the Strait of Hormuz was the dominant factor for the gold and silver price, with nightly bombardments, retaliation and a series of earlier peaks in the oil price. Since late Friday evening, that pattern is broken. An Iranian official let it be known via Reuters that Tehran is suspending its retaliation as long as Washington does the same, and reporting from NPR and Al Jazeera, among others, confirms that both sides got through the weekend without new strikes. According to US media, practical considerations also played a role, including concern among military advisers about shrinking ammunition stocks and a limited number of remaining usable targets.
Important to remember is that this is not a signed ceasefire, but an informal, unannounced pause that can flip back at any moment. Diplomats are meanwhile trying to use the room to get back to the negotiating table, Al Jazeera reports, but a real agreement is not yet there.
Why less war still gave a higher gold price
Anyone who knows the classic logic of safe havens expects that less war risk puts the gold price under pressure precisely because the demand for protection falls. Yet the rate rose. The explanation lies with the oil price. When the fighting stopped, a large part of the fear of a new oil shock via the Strait of Hormuz immediately disappeared, and Brent oil gave up between 4 and 7 percent in a day. Cheaper oil means less upward pressure on inflation, and that reduces the chance that the Federal Reserve has to raise rates further. It is precisely that lower rate expectation that works in gold’s favour, as it yields nothing itself and so becomes more attractive as soon as alternatives such as savings accounts or bonds earn less.
In other words, the gold price is currently pulled by two forces that often work in opposite directions. War risk normally pushes up through the safe-haven reflex, while that same war risk can, through more expensive oil and higher rates, push precisely down. This week, the second mechanism won convincingly over the first.
The Federal Reserve arrives right in the middle
The timing could hardly be more unfortunate, or precisely more interesting, because on Tuesday and Wednesday the Federal Reserve decides on its rate. Markets still price in a considerable chance of a further hike this year, despite the cooling of the oil price. A surprise in either direction, either an unexpectedly hawkish tone, or a signal that the Fed is becoming more cautious, can quickly move the gold and silver price in the coming days. The combination of a shaky war pause and a crucial rate decision makes this week one of the most unpredictable of the summer for precious metals.
What this means for those wanting to sell old gold or silver
For anyone with old gold, jewellery, coins or silver cutlery at home, the bigger picture stays unchanged. Gold and silver still trade well above last year’s level, even after this changeable week full of contradictory signals. A pause in a war that steered the market for weeks, combined with a Fed meeting right in the middle of that pause, is exactly the kind of week in which the rate can swing sharply from day to day. That is why De Munter advises never to rely on a price you read in the news a few days ago, but to have the value of your pieces determined at the moment of sale itself, at a recognised buyer who applies the current rate.
Whether the pause holds, or the Fed surprises, cannot be said with certainty today. What is certain is that the gold and silver market deserves this week the full attention of anyone considering a sale.