Metals Prices Decline Amid Ongoing Conflict in West Asia
The ongoing conflict in West Asia is reshaping the dynamics of precious metal prices, defying the long-held belief that global uncertainties and inflation would drive these prices higher. Instead, both gold and silver have experienced significant declines in value. Analysts attribute this downturn to a combination of factors, including a slowdown in de-dollarisation efforts, rising interest rates, and a decrease in industrial demand for silver. As a result, the prices of these metals have fallen sharply since the onset of the war, raising concerns among market players.
Price Declines in Precious Metals
Since the outbreak of the war, the price of gold in the local market has plummeted by 12%, now standing at approximately Rs 1.4 lakh per 10 grams. Silver has seen an even steeper decline, dropping 14% to Rs 2.3 lakh per kilogram. In the international market, gold has decreased by 16.5%, trading at $4,367 per ounce, while silver is priced at $68.5 per ounce. When compared to their all-time highs recorded at the end of January, the situation appears even more dire. Gold has lost 19% of its value domestically, and silver has plummeted by 41%. Internationally, gold has shed 20%, and silver has dropped 42%. These figures highlight a significant shift in the market landscape for precious metals.
Impact of De-Dollarisation and Interest Rates
A local fund manager noted that the past few years have seen a wave of de-dollarisation, where economies are attempting to reduce their reliance on the U.S. dollar for international trade. This trend has contributed to a decline in the dollar’s value, as reflected in the dollar index, which fell from a high of 114 in September 2022 to a low of 97 by mid-February this year. Since precious metals are priced in dollars, this depreciation has made them more affordable in other currencies, initially boosting demand. However, the ongoing war has stalled de-dollarisation efforts and raised inflation concerns, which could lead to higher interest rates. As a result, large buyers of precious metals may be compelled to sell portions of their holdings to mitigate rising warehouse costs associated with increased interest rates.
Market Sentiment and Future Outlook
Analysts are expressing caution regarding the future of precious metals. Jateen Trivedi, a VP research analyst at LKP Securities, indicated that despite some recent gains, the overall market environment remains unfavorable for precious metals. The persistent inflation risks stemming from elevated crude oil prices and uncertainty surrounding interest rate trajectories continue to weigh heavily on market sentiment. This fragile outlook suggests that any potential recovery in gold prices may be limited. For silver, the decline in industrial demand due to the war further complicates the situation, contributing to its significant price drop.
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