US-Iran Tensions Spark Gold and Silver Price Plunge

Gold and silver prices plummeted in early Asian trade on August 31 due to renewed US-Iran tensions that pushed oil prices higher. Brent futures rose 1.4% to $89.38 a barrel, while US crude increased 1.3% to $84.50 a barrel. The surge in oil prices contributes to inflationary pressures, making the Federal Reserve less likely to cut interest rates or more inclined to keep them higher for longer.

The probability of a September US rate hike has risen to around 57%, according to Reuters. Higher bond yields also weighed on precious metals, as investors can earn interest from US government securities, increasing the opportunity cost of holding non-yielding assets like gold and silver.

Gold futures on the COMEX fell 0.91% to $4,488.60 an ounce, while silver dropped 0.83% to $66.44 an ounce. The dollar's strength also puts pressure on gold and silver as both are priced globally in US dollars, making them relatively more expensive for buyers holding other currencies.

Despite the near-term pressure, the medium-term outlook remains divided. Monarch PMS expects gold to trade between $4,300 and $4,700 an ounce and silver between $70 and $85 an ounce by year-end in its base case. It assigns a 55% probability to this scenario, assuming the Fed keeps rates unchanged through September, energy prices normalise, and real yields remain broadly stable.

Silver's outlook also gets support from its physical supply-demand balance. Monarch expects the silver market to remain in deficit for a sixth consecutive year, while mine supply has remained flat for about a decade.