Inflation Worries Pull Gold and Silver Prices Lower

In what is shaping up to be a bad month for precious metals, gold and silver prices have slumped further as concerns increase that the escalating war in the Middle East could lead to a spike in inflation and cause a recession in the global economy.

The inflation concerns are keeping precious metals traders worried that central banks could keep rates higher in a bid to keep the lid on inflation. Precious metals are non-yielding, so when interest rates stay elevated, the appetite to buy gold and silver dampens. Because of these inflation worries, precious metal prices have taken a battering and have lost significant ground from the record highs they soared to as the year started.

April futures for gold were trading at $4,669 per ounce while silver due for delivery in May was going for $70.73 an ounce.

The Middle East war has pummeled precious metals. Gold has shed about $900 from the unprecedented highs it reached in January. Similarly, the conflict has caused silver to shed $50 from the peak it reached in January. As for copper, a key global economy indicator, all the gains it had notched at the start of the year have been surrendered as energy prices soar and the global economy faces a real risk of not growing or even going into recession.

As expected, the U.S. Fed left interest rates unchanged amid concerns about the adverse economic effects of the ongoing war with Iran. Chairman Powell revealed that only one rate cut should be expected this year as the FOMC monitors how the ongoing Middle East war plays out.

He added that for additional rate cuts to be made there has to be certainty that inflation is coming under control and is moving towards the 2% target desired. At the moment, the central bank forecasts that inflation will play out at an annualized rate of 2.7% for this year, which is significantly above target levels.

The Fed chair also revealed that he doesn’t intend to resign from his position as a result of the ongoing DOJ investigation. Once that investigation is completed and its findings warrant that he gives up his position, such a move would be considered, he added.

In the meantime, things aren’t looking good for the energy markets after Israel targeted a giant gas field in Iran and Iran retaliated by also striking an LNG export facility in Qatar and an oil refinery in Saudi Arabia. The energy sector could be set for more turmoil if these tit-for-tat attacks escalate and cause global shortages that drive prices a lot higher than they have so far risen.

Players in the precious metals industry like New Pacific Metals Corp. (NYSE American: NEWP) (TSX: NUAG) will be watching how geopolitical events evolve over the coming weeks and recalibrating their strategies going forward.

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