Gold and silver prices have fallen sharply. With the gold price declining to $4,300 per troy ounce, all gains made since the start of the year have been unexpectedly wiped out. Since the record high of just under $5,600 at the end of January, losses now amount to nearly $1,300, or 23 per cent.

Silver came under even greater pressure. The price of a troy ounce of silver has lost nearly half of its record level of just under $122 since the end of January. On Monday, the silver price fell a further five per cent to $64.25. Since the start of the Iran War just over three weeks ago, silver has cheapened by more than 30 per cent.

Why Did Gold Fail to Benefit from the Iran War?

Despite initial gains in gold, consistent with the classic flight-to-safety reflex, sentiment and direction shifted very rapidly.

Sharply rising oil and gas prices have increased inflationary risks and reduced the prospect of imminent interest rate cuts by the US Federal Reserve and other central banks. Higher interest rates tend to weigh on precious metals, as they yield no income.

What is the Outlook for Gold?

The severely overbought condition, of which we warned in our market report "Even Gold Cannot Grow to the Sky" at the beginning of February, has been completely resolved by the sharp price correction. From a technical standpoint, gold is currently even oversold. A positive counter-move is therefore possible at any time.

From a fundamental perspective, the development of the gold price in the coming months will be determined by four key, interrelated factors: real yields, the scale and duration of the energy-policy and geopolitical shock, the strength of the US dollar, and capital flows.

In the short term, the most likely outcome is a period of heightened volatility.

Over the longer term, we view the prospects for gold and silver positively. Structural factors speak in favour of this view – in particular, sustained central bank demand and the persistence of political uncertainties. Moreover, at current price levels, demand for jewellery and investment purposes should recover.

What Should Investors Do Now?

When it comes to portfolio decisions, reacting emotionally to short-term price fluctuations is a poor guide. We therefore recommend that long-term investors continue to hold gold as a strategic asset for diversification and protection.

Those with genuine concerns about systemic risks, a depreciation of the US dollar, or a hard-landing scenario should add to their gold holdings now.

For price-oriented investors too, the current period of weakness presents a good opportunity to profit in the medium term from staggered purchases.

DISCLAIMER

This report provides a brief overview of the economic environment and has been prepared solely for marketing purposes. The information does not constitute financial analysis, investment advice or a recommendation to buy or sell. The information has not been prepared in accordance with the legal provisions promoting the independence of financial analysis and is not subject to any prohibition on trading following the dissemination of financial analysis. This report cannot and is not intended to replace investment advice. The information in this report is based on our own analyses as well as on external sources that we consider reliable, but which we have not subjected to neutral review. We accept no responsibility or liability for the accuracy or completeness of the information. The opinions expressed in this report are solely those of the authors and are subject to change at any time; such changes of opinion do not have to be published. Past performance, simulations or forecasts are not a reliable indicator of future performance. Forecasts are a poor estimator.