Gold and silver retreated after renewed US military strikes in the Persian Gulf, with gold down by nearly 2% and silver tracking the move. The pullback followed a rise in oil and reflected an inverse relationship seen in recent weeks, where higher energy prices feed inflation concerns and lift interest-rate expectations, which tends to pressure non-yielding metals.
Commerzbank expects de-escalation in the Iran conflict to support a recovery in both metals into year-end. Silver has continued to trade largely in step with gold, while the gold-to-silver ratio has stayed between 60 and 65 since the end of January and has barely shifted in the last two weeks. Even with an immediate end to the war, the bank sees normalisation as likely to take time.
Recent Price Movements and the Oil-Gold Relationship
We are seeing gold prices pull back towards the $2,850 level, a drop of nearly 2% in the past week. This move is directly tied to elevated oil prices, with Brent crude pushing above $105 a barrel following recent military strikes in the Persian Gulf. This confirms the unusual inverse link between oil and gold that has dominated markets in recent weeks.
The market’s logic is clear: higher energy prices fuel fears of persistent inflation, which forces central banks to consider keeping interest rates higher for longer. April’s headline CPI data, which came in hotter than expected at 3.8%, has made traders particularly sensitive to this risk. Since gold pays no yield, the prospect of higher rates makes it less attractive compared to interest-bearing assets.
Outlook and Trading Strategies on Geopolitical De-escalation
However, we believe this presents an opportunity for those positioned for de-escalation in the Gulf. Any signs of diplomatic progress or a reduction in tensions would likely cause oil prices to retreat, easing inflation fears and boosting gold. We expect the current geopolitical risk premium in energy is unsustainably high and will fade heading into the end of the year.
For the coming weeks, we are looking at long-dated call options on gold to capitalize on this expected rebound. Specifically, we see value in contracts expiring in the fourth quarter of 2026 with strike prices around $2,950 and $3,000. This strategy offers a defined-risk way to profit from a significant price recovery in gold by year-end.
Silver should be viewed through the same lens, as it has been trading in lockstep with gold. The gold-to-silver ratio has remained remarkably stable in a tight range around 63, even amidst the recent volatility. Therefore, similar call option strategies on silver could provide a higher-beta play on the same de-escalation theme.
To complement this view, we are also considering bearish positions on crude oil as a hedge or a direct bet on tensions easing. Buying put options on WTI crude futures with third-quarter expirations could prove profitable if the situation normalizes. This move would benefit from the same catalyst that we expect to lift precious metals.
This pattern is not without precedent, as we saw a similar dynamic following the energy price spike of 2022. Once initial supply fears abated and markets stabilized, oil prices corrected sharply while gold began a steady ascent. We anticipate a similar re-pricing will occur once the current focus on conflict subsides.
