Amidst escalating tensions between the United States and Iran, the spark of war that has not yet been extinguished is burning even hotter, prompting global investors to turn their gaze toward the precious metals market. According to London Metal Exchange prices on the 1st, gold is trading steadily around $4,627.40 per ounce, while silver is trading at approximately $74.58 per ounce. Just a short while ago, news of military clashes in the Middle East caused gold prices to skyrocket to $5,341.90 per ounce; although they have since cooled slightly, they remain in the high range near their all-time highs, leaving market tension unabated.
Experts analyze that the view of precious metals as a safe haven remains strong. Gold has historically been classified as a premier defensive asset, seeing demand surge during times of war or financial system instability. Silver, meanwhile, possesses a dual nature: it retains the characteristics of a precious metal while also being an essential material for industrial applications such as solar panels and electronic components. As geopolitical risks in the Middle East increase, the appeal of both metals as safe assets is highlighted. However, the recovery rate of global manufacturing and fluctuations in energy prices significantly affect industrial demand, which plays a core role in determining the volatility of silver prices.
Gold-related exchange-traded funds (ETFs) and silver-related funds traded on the New York Stock Exchange are also following the bullish trend of the physical market. While exact fund prices are not disclosed, the prevailing assessment is that they recorded a concurrent upward trend in line with the sharp rise in physical prices. Particularly, speculative capital flowing in from China rapidly circulates in and out of futures markets and related funds, causing immediate reflection of short-term buying and selling sentiment on fund prices. This illustrates the difference in reaction speed between the physical market, which involves actual buying and selling of goods, and the fund market, where only capital flows.
Politics and geopolitical variables are driving today's market trends. The war triggered by preemptive airstrikes by the United States and Israel has heightened military tensions across the entire Middle East, stimulating a preference for safe assets. Concerns over inflation due to oil supply disruptions and pressure on troop deployments through the Strait of Hormuz have acted as direct stimuli for gold prices. Furthermore, political instability in South America, including the arrest of Venezuelan President Maduro, and intensified trade conflicts due to additional US tariff threats against Europe have also strengthened risk-averse sentiment. There is also a temperature difference between the physical and fund markets: while the physical market recorded double-digit declines in price within a single day amid intensified Middle East disputes and the influx and outflow of Chinese capital, resulting in increased volatility, funds showed a lagged adjustment due to overlapping factors such as trading hours, liquidity, and hedging demand in the financial markets. This is interpreted as a reflection of the structural differences between the physical market, centered on physical delivery and long-term holding, and the fund market, characterized by active short-term trading and arbitrage.
Overall, the market atmosphere is defensive. Reports indicate that some emerging market central banks, including the Central Bank of Turkey, are expanding gold purchases, making central bank demand a symbol of the preference for safe assets. On the other hand, the Vietnamese government is issuing instructions to minimize gold hoarding and speculation, adopting policies to induce demand primarily for jewelry, revealing that national governments are taking steps to manage domestic gold supply and demand. In the silver market, policy issues are also at play, such as the US including silver in its list of critical minerals and discussing price floors for major minerals under Section 232 of the Trade Expansion Act. Although still in the discussion phase, the characteristic of silver overlapping industrial demand and strategic stockpiles means that caution regarding policy direction acts as a background factor in price formation. The case where Chinese capital pushed silver prices up in a short period only to trigger a 26% decline in a single day demonstrates that volatility can expand further when speculative trading overlaps with policy and geopolitical variables.
Gold and silver prices are evaluated as assets that react sensitively to US Federal Reserve monetary policy, the value of the dollar, and geopolitical variables such as the US-Iran war. Discussions on monetary policy changes are continuing, with the Trump administration nominating a hawkish Kevin Warsh as the next Federal Reserve Chair, highlighting expectations for a strong dollar. Therefore, it is necessary to note that short-term price volatility may continue in the future, driven by interest rates and exchange rates, as well as wars, sanctions, and tariff conflicts.