Gold prices staged a sharp reversal on Wednesday, slumping by Rs 4,300, while silver tanked by Rs 10,000, as a fresh escalation in US-Iran geopolitical tensions sent crude oil surging past USD 90 per barrel and strengthened the dollar. The rally in oil and the subsequent strengthening of the greenback rattled bullion demand, leading to a significant drop in precious metal prices.
Reasons Behind the Decline
According to Rajkumar Subramanian, Head of Product & Family Office at PL Wealth, the fresh surge in crude oil prices above USD 90 per barrel was a key factor behind the decline in gold and silver. The rise in oil prices was triggered by renewed geopolitical tensions between the United States and Iran, which raised concerns about supply disruptions in the global energy market. Additionally, the strengthening of the US dollar against major currencies made gold and silver more expensive for holders of other currencies, further dampening demand.
Impact on Bullion Market
The sharp drop in gold and silver prices marks a reversal from recent gains, as investors shifted focus to riskier assets amid the oil rally. The stronger dollar and higher oil prices typically weigh on bullion, as they increase the opportunity cost of holding non-yielding assets like gold. Market participants are now closely watching further developments in US-Iran relations and their impact on oil prices and currency markets.
In the domestic market, gold prices fell to Rs 71,000 per 10 grams, while silver dropped to Rs 85,000 per kilogram, according to industry sources. The correction in prices may attract some buying interest from jewellers and investors looking to accumulate at lower levels, but sustained gains in oil and the dollar could keep bullion under pressure in the near term.
Expert View
Subramanian added that the current environment of elevated oil prices and a strong dollar is negative for gold and silver. He advised investors to remain cautious and monitor geopolitical developments closely. If tensions ease and oil prices retreat, bullion could see a recovery, but for now, the outlook remains bearish.
