Gold and silver prices sank sharply on Thursday, both setting new 8-month lows in London's bullion market, as escalating hostilities between the United States and Iran sent crude oil prices surging, stoking inflation fears and reinforcing expectations that the Federal Reserve will keep interest rates elevated, or even raise them further, this year.
Silver bullion lost $1.50 to fix around $56.45 per troy ounce at London's midday auction, its lowest since the last day of November, before dropping another dollar in spot-market trading to $55.68, a 3.6% decline on the day. London gold prices, meanwhile, fell 1.6% from Wednesday afternoon, setting a 3 pm benchmark below $4,000 for the first time since early November, fixing at around $3,995 per ounce.
Spot gold was down 1.9% at $3,984.64 per ounce by 2:05 p.m. EDT, after falling as much as 2% and touching a fresh 13-day low of $3,974 earlier in the session. U.S. gold futures settled 1.5% lower at $3,992.10, while Comex futures at one point shed $74 intraday following an $18 decline in the previous session. Other precious metals fared no better: platinum slid 3.1% to $1,621.83, and palladium dropped 4.1% to $1,260.70. The selloff extends a difficult stretch for bullion, which declined 14% in the second quarter, its worst quarterly performance since 2013, after hitting record highs above $5,000 in January and February.
The catalyst for Thursday's rout was a fresh jump in crude oil prices, driven by worsening violence between Washington and Tehran. The US intensified its military campaign against Iran for a fifth consecutive day, targeting missile storage facilities and launch sites near the strategic Strait of Hormuz. At the same time, the US Navy attacked an oil tanker heading to Iran near the vital shipping chokepoint.
Iran responded with missile and drone attacks on US allies in the region. Tehran vowed to crush "all infrastructure in the region" if Washington pursues President Trump's threat to strike power plants and bridges. Tehran has also asked Yemen's Houthis, whom it backed in opening a "new front" against Saudi Arabia this week, to stand ready to close the Red Sea oil route if the US strikes Iranian power infrastructure. Trump, for his part, has pledged to intensify operations until Iran stops attacking vessels in the Strait of Hormuz and agrees to reopen the route.
The conflict is widening elsewhere in the region. Israel launched a fresh assault in southern Lebanon, extending military action that has continued despite a "ceasefire" agreed at the start of June, while Iran-backed Hamas called on Palestinians in the West Bank to use "resistance and steadfastness" against Israeli occupation policies and settlement expansion. "All of this is fraught with continuing negative consequences for the global economy," said Kremlin spokesman Dmitry Peskov, as Russian oil companies reportedly asked India to supply gasoline amid Ukraine's continued attacks on Russian refineries.
Global oil prices rose for the fourth day this week. US WTI crude climbed above $80 per barrel for the first time since mid-June, up over 13% in July, while Brent traded above $85, more than 15% higher than pre-conflict levels, though still well below the nearly $120 touched at the height of the war.
Higher oil prices stoke inflation concerns, raising expectations of elevated interest rates and denting the appeal of non-yielding gold even as safe-haven demand might otherwise support it. "Oil prices yet again have moved higher, and with the higher Brent levels, I think there's continued expectation that U.S. yields are likely to go higher, probably maybe even a rate hike as early as September," said Bart Melek, global head of commodity strategy at TD Securities.
Traders are now pricing in roughly a 53% chance of a Fed rate hike in September, according to the CME FedWatch Tool, with end-year rate expectations rising above 3.90%, reflecting a consensus for one 0.25-point rate hike before Christmas. Money markets expect the Fed to hold at the July meeting, with odds of a hold at 73%, but chances of an October hike stand at 57%, per Prime Terminal data.
Hawkish commentary from Fed officials added to the pressure. Dallas Fed President Lorie Logan called for a modestly higher policy rate to better balance the outlook and risks. At the same time, Kansas City (State of Missouri) Fed's Jeffrey Schmid warned that "inflation is proving persistent across a broad selection of goods and services." This week, Fed Chair Kevin Warsh declared his determination to bring inflation down, without specifying how. This hawkish tilt persists despite some softening in price data; US consumer inflation slowed in June, and the producer price index declined. "Even if some of the near-term economic data softens, persistently high energy prices would make it difficult for the Fed to adopt a more dovish stance. For the same reason, investors are preferring the dollar over the zero-yielding gold," said Fawad Razaqzada, market analyst at Forex.com.
Thursday's US economic data painted a mixed but broadly resilient picture. Retail sales rose 0.2% in June, marking an eighth consecutive monthly gain, in line with expectations but below May's 1% increase, which had been driven mostly by higher gasoline prices. The control group measure used in GDP calculations slowed from 0.8% to 0.5%, as expected. Pending home sales fell sharply by 5.4% after a 3.5% increase in May, while initial jobless claims were reported at 208,000, below the forecast of 217,000, and continuing claims also decreased. The Fed's Beige Book described the labor market as strong, with some districts showing "modest, moderate, or solid gains."
The US dollar rallied from a one-month low, gaining around 0.2–0.24% on its trade-weighted DXY index to 100.74, making bullion more expensive for overseas buyers. Yields on the benchmark 10-year Treasury note rose nearly 3 basis points to 4.577%. Global stock markets fell alongside gold and silver, as did government bond prices, and Wall Street's main indexes ended lower, with the Dow dropping two-tenths of a percent.
"Gold could remain rangebound in the near term, as expectations for at least one Federal Reserve rate hike this year continue to limit upside," said a note from Australasian bank ANZ. Some large investors, however, see the pullback as an eventual buying opportunity. After cutting exposure to 'neutral' at gold's record highs early this year, Ian Samson of Fidelity's multi-asset portfolio team told Bloomberg, "there's a plan to go back to overweight in gold." "The question is when. Tactically, there are as many headwinds as tailwinds."
On the technical front, gold's trend remains bearish. A decisive break below $3,974 would target the year-to-date low of $3,941, with further weakness potentially testing the $3,900 milestone and the October 2025 swing low at $3,886. Comex analysts note that a break below $3,955 could drag the metal to its lowest level in nearly eight months. For a bullish reversal, bullion must clear the downtrend resistance between $4,125 and $4,175, which would open the path to the 50-day moving average at $4,305 and the 200-day moving average at $4,495. For now, with war risk pushing energy prices rather than safe-haven flows to the fore, precious metals remain caught in the crossfire between geopolitical fear and monetary policy reality.
