Iran war won’t change precious metals’ trajectory – but a recession would – with silver and PGMs set to suffer the worst – Heraeus

In their latest update, the analysts looked at the performance of the precious metals complex during previous conflict-driven oil shocks.

“Historically, oil price shocks have had a limited immediate impact on precious metal prices, with the price trend that existed prior to the oil price shock usually continuing,” they wrote. “However, the impact on the wider economy can influence the metals’ prices. The two oil shocks in the 1970s occurred during a precious metals bull market and the prices continued to climb after the oil shocks, but prices peaked and reversed course once the US economy entered recession. The Gulf War in 1990 occurred while precious metal prices were falling and that trend continued as the war coincided with a recession. However, the Russian invasion of Ukraine in 2022 and the Iraq War in 2003 both came two years after a recession and the broader economy was still strengthening, so the oil price shock was not followed by a recession.”

The analysts said a recession would more negatively impact PGMs and silver prices than gold because of their greater industrial use. “Considering the economic turmoil of the last 12 months US GDP growth has held up well, but the situation looks fragile as jobs data has been poor, although unemployment has remained stable,” they said. “Higher energy costs are going to feed through to higher prices for businesses and consumers who are already struggling with the cost of living.”

“It is now six years since the last recession,” the analysts warned. “Typical business cycles last five to six years, raising the risk that the economy slips into recession which drags down precious metal prices.”

The oil price shock has also had the effect of putting U.S. rate cut expectations on hold. “The markets have adjusted the odds for interest rate cuts following the spike in oil prices which is expected to result in higher inflation,” they wrote. “The market projections for the December Fed meeting now show one cut as the most likely and the odds of one cut or no change have jumped, while the odds of two or more cuts have collapsed.”

“The jobs data has been pointing to further rate cuts as the non-farm payroll report showed 92,000 jobs were lost in February and the prior months’ figures were revised down, while unemployment edged up to 4.4% in February.”

Beyond the United States, Heraeus pointed to a rule change by Indian regulators enabling wider investment in gold and silver. “The new regulations announced by the Securities and Exchange Board of India allow equity funds to invest up to 35% of their assets in gold and silver,” the analysts wrote. “At a minimum, the new rule could let the funds hold uninvested funds in gold rather than cash to avoid currency devaluation. India is the second-largest gold-consuming nation and the top nation for silver jewellery and silverware. Indians have traditionally invested in physical metal but ETFs in India have become increasingly popular, with funds holding over 110 tonnes as of January.”

Gold is trading on both sides of $5000 per ounce support on Monday morning after hitting a low of $4,967.77 earlier.

Spot gold last traded at $5,029.27 per ounce for a gain of 0.17% on the session.

Turning to silver, Heraeus analysts noted that as silver prices have been consolidating, ETF investors have also been reducing their holdings.

“Global silver ETF holdings slipped again last week by 6 moz to 817 moz, down from 863 moz at the start of the year,” they wrote.

“January is typically a strong month for silver coin sales in the US, and this year was no exception with more than 4.8 moz sold by the US Mint,” they said. “Sales also typically fall back in February and that was the case again this year, although at 1.7 moz they were the highest in five years.” analysts

Futures longs have also risen as silver prices pulled away from their recent lows. “The non-commercial net long futures position climbed to 116.7 moz in early March, up from 111.3 moz, as the price recovered,” they said. “The CME lowered margin requirements for precious metals futures on 6 March, cutting silver margins from 18% to 14% and gold margins from 9% to 7%. The silver price has fallen back into a support zone around $80/oz. If that gives way the price could test the prior lows at $72/oz and $64/oz.”

Silver prices are setting new session highs above $81 per ounce on Monday morning after trading as low as $77 earlier in the session.

Spot silver last traded at $81.570 per ounce for a gain of 1.18% on the daily chart.