Precious metals in general and gold in particular enjoyed a stellar run in 2025 with the yellow metal reaching a record high price of $ 4550 a troy ounce at the end of the year reflecting a meteoric 65% price gain during the year, a spectacular performance by any reckoning. 

Silver outperformed with price rising as much as 148%, the strongest annual increase since 1979. Not to be left behind, platinum rose by 127% the strongest rise since trading started in 1987 to reach $ 2490/oz, while palladium increased by 77%, the strongest annual gain in 15 years, to trade at a 3-year high of just under $ 2000/oz. 

This spectacular performance of the precious metals complex emboldened market participants. From early this year, gold bulls have been betting on the yellow metal setting a new record high of $ 6,000 per troy ounce in 2026. No doubt, the metal reached a high of $ 5400/oz by the last week of February, raising further expectations of a continued bull-run. 

Multiple reasons were proffered. Geopolitical tensions, geo-economic uncertainties, relatively weak US dollar, expectation of rate cut by the US Federal Reserve and continued central bank purchases were cited as factors to drive gold prices. Gold’s safe haven status was widely seen as real. The US military intervention in Venezuela surely provided tailwinds to the expectation.   

 

The Israel/US military action against Iran at the end of February added more grist to the mill. The war is now entering its fourth week, but precious metals prices are retreating rather than rising despite geopolitical tensions. 

For instance, gold has lost as much as 15% of its value equivalent to $ 800/oz in the last 20 days. 

With the virtual closure of the Strait of Hormuz, energy commodity supplies are highly disrupted, leading to a sharp spike in energy prices. Brent has already breached $ 110 a barrel, rising from around $ 60 a barrel at the start of the year. 

Energy price rise combined with the US tariff driven price firmness has raised inflation risks. No wonder, the Fed is extremely cautious about interest rate cut. The result, USD is appreciating. Gold finds itself under pressure from elevated oil prices and outflows from ETFs. 

Gold rates have been plummeting down for several days. On March 20, the precious metal was trading at around $ 4670/oz, down 7% from a week earlier and down 8.7% from a month ago. 

One key reason for this is the rapidly rising oil prices and damage caused to producing countries in the Persian Gulf region. As much as 20 million barrels a day pass through the Strait of Hormuz. Its closure and likely delay in ramping up production has created a sense of shortage.

So long as the war lasts and inflation lingers, interest rates are unlikely to fall. If anything rates may rise. As a result, bond yields have risen and the USD has gained. These are headwinds for gold. In addition, investors are seen withdrawing funds from gold ETFs on a sizeable scale.

The Middle East, particularly Dubai, is widely recognized as the epicenter of gold trade and this region is facing the ravages of war. This is sure to hurt demand. 

Not just gold, other precious metal prices too have followed suit. Silver has fallen to around $ 66/oz while platinum has slipped to $ 1875/oz, a six week low. Palladium too has fallen to $ 1415/oz, a 4-month low. These are metals with significant industrial demand. War related disruptions are raising question marks over the world’s growth prospects in 2026.

No one knows when the war would end and what the outcome would be. A lot of uncertainty lies ahead. Therefore, retail investors have to exercise utmost caution is trading. It is advisable not to take far-forward positions. Also, small investors have to be wary of statements that promote FOMO (fear of missing out). 

Currently, world gold market is driven largely by investment demand rather than physical demand. In reality, physical demand is rather weak. Even central bank purchases have softened. 

The current prices carry a ‘war risk premium’ of $ 500 to $ 1000 a troy ounce. If and when war risks abate, gold prices may face further correction. 

The gold bulls will not tell you about war risk premium. The principle of ‘caveat emptor’ applies. Do your own research thoroughly and do not get carried away by what may be a systematic campaign to talk the gold market up or create a frenzy to attract gullible investors. 

India is a large importer and consumer of gold, spending annually several tens of Billions of dollars. India is a gold price-taker rather than a price setter. Gold prices are set in London and New York. Our domestic market broadly reflects global dynamics.  

This article intends to provide a background to the current precious metals market. It does not intend to provide any price guidance. Caution is advised in trading.