Silver Falls Twice Amid Geopolitical Tensions, Despite Initial Fears

The Strait of Hormuz has been closed twice this year, and both times it led to a decline in silver prices. The crisis bid went into the US dollar rather than metals, causing the price of silver to fall instead of rallying.

Despite the geopolitical tensions, which would typically drive up precious metal prices, silver traded near $58.77 an ounce as the gold-silver ratio reached 69.5 in late July. This ratio measures how many ounces of silver it takes to buy one ounce of gold, and investors watch it to gauge whether silver is undervalued or overvalued compared to gold.

The war between the US and Iran did not directly impact silver prices, but rather the subsequent oil price spike had a greater effect. Higher energy prices led to higher expected inflation, which in turn pushed up interest rate expectations. This created a headwind for silver, as it pays no interest, making it less attractive compared to other assets.

Gold also fell during this period, but silver dropped further due to its industrial uses, accounting for around 57% of total demand. A shock that raises energy costs and threatens growth hits silver from two directions at once, leading to a wider gold-silver ratio.