Metal prices fell across the board! Gold plunged over 4% and briefly fell below 4600, silver slumped 12%, and London aluminum saw its biggest drop since 2018!
The flames of war in the Middle East are rewriting market logic.
Gold, once considered a safe-haven asset, has been falling for several days in a row, and silver has experienced a rare plunge. At the same time, industrial metals such as LME copper, LME aluminum, and LME tin have also plunged in synchrony, resulting in a rare simultaneous decline of “precious metals + industrial metals.” The driving force behind this shift is no longer simply supply and demand, but rather energy shocks pushing up inflation, suppressing rate cut expectations, and causing a double squeeze of tightening liquidity and demand concerns, putting overall commodities under pressure.
Middle East war lifts inflation expectations, gold and silver lead sharp declines across commodities
The continuously escalating situation in the Middle East is fueling inflation fears and hitting the global commodity market hard, resulting in large-scale sell-offs of both precious and industrial metals.
On Thursday, spot gold briefly fell below $4,600/oz, dropping more than 4% intraday. This marks the seventh consecutive trading day of declines, setting a record for the longest losing streak since 2023.
Spot silver’s plunge was even more severe, falling more than 12% intraday, breaking below $66, and hitting a new low since February 6. The main silver futures contract on the Shanghai Futures Exchange dropped 14%, closing at 16,120 yuan/kg. According to media reports, Iran and Israel have attacked key energy facilities in the Persian Gulf, driving oil prices higher. As a result, expectations for Fed rate cuts have cooled, putting pressure on non-interest-bearing gold.
International copper and Shanghai copper dropped over 3%; liquefied petroleum gas rose over 4%.
War drives up oil prices, rate cut expectations suppressed
Since the outbreak of conflict in the Middle East nearly three weeks ago, crude oil and natural gas prices have soared and inflation risks have risen significantly. At Wednesday’s FOMC meeting, the Fed kept rates unchanged and revised its rate cut expectations for this year down to just one. Chairman Powell stated clearly that rate cuts require inflation to ease as a prerequisite.
Analysts believe this statement directly dampened gold’s appeal. Gold does not generate interest, and in a high-interest-rate environment, the cost of holding gold increases. Once expectations for rate cuts shrink, funds tend to move out of gold assets.
According to media, since the outbreak of war, gold’s price movement has been similar to its downturn in the summer of 2022, when the Russia-Ukraine conflict triggered an energy price shock that transmitted to global markets. Although volatility in the precious metals market has eased somewhat compared to the sharp swings in January, frequent price fluctuations have deterred some risk-averse investors.
ETF outflows continue, safe-haven qualities questioned
Media reports indicate that physical gold holding tools, represented by gold ETFs, have seen continued net capital outflows in recent weeks, putting further pressure on gold prices. Gold ETFs are the mainstream channel for retail and institutional investors in the West to hold gold, and their demand is especially sensitive to interest rate changes.
Some investors have begun to view gold as a speculative asset rather than a traditional safe-haven. While precious metal volatility has subsided compared to January, continued price swings have discouraged risk-averse investors, and ongoing fund outflows have further weakened the support base for gold prices.
Industrial metal declines reach historic extremes
For industrial metals, LME aluminum’s single-day plunge of over 8% marks the biggest drop since 2018, quickly erasing gains that had accumulated due to supply risks from the Iran conflict, showing that concerns about the global economic outlook have now spread to industrial demand.
Additionally, LME copper fell over 5%, latest at $11,765.5/ton; LME tin major contract dropped 7%, closing at $42,110/ton. Panic selling has swept the commodity market, with declines rarely seen in recent years across multiple varieties. After the night session futures opened on the Shanghai Futures Exchange, Shanghai aluminum, Shanghai tin, and Shanghai gold fell over 5%.
Analysts believe that the broad slump in commodities reflects investors’ overall worries about the escalating Middle East conflict, soaring energy costs, and central banks facing obstacles in shifting monetary policy. Unless inflation pressures ease, renewed pricing of the rate cut path may continue to weigh on commodities.
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