#Gate广场四月发帖挑战 Do falling precious metal prices present a buying opportunity?

The escalation of the Middle East situation has heightened inflation expectations, disrupted energy supply chains, driven up military spending, and deepened geopolitical uncertainties. This should have created a favorable environment for precious metals as safe-haven assets. Conversely, since the conflict erupted on February 28, the prices of gold, silver, platinum, and palladium have plummeted, continuing the downward trend that began in the last week of January. So, what has driven this downward trend, and what are the prospects for the future?

Inflation concerns have pushed up precious metal prices over the past year
Multiple factors contributed to the rise in precious metal prices from early 2025 to late January 2026, but fundamentally, they can be summarized as concerns about inflation. Factors fueling inflation expectations include:
First, core inflation above target levels: even before the conflict, inflation levels in most major economies, excluding volatile food and energy prices, were already above central bank targets.
Second, monetary policy becoming more accommodative: despite widespread high core inflation, nearly all major central banks are cutting interest rates.
Third, large fiscal deficits: many countries have budget deficits exceeding GDP, including Brazil (8.5%), France (5.5%), Mexico (4%), the UK (4.5%), and the US (5.5%). Meanwhile, countries like Germany and Japan are also preparing to significantly increase infrastructure and military spending, further expanding deficits.
Fourth, concerns over central bank independence: amid inflation above targets, easing monetary policy, and large budget deficits, investors are increasingly worried that central banks may be pressured to fund deficits through loose monetary policies.
Fifth, geopolitical uncertainties: rising trade barriers, reshoring of supply chains, nearshoring trends, potential conflicts in the Middle East and the Pacific, combined with ongoing Russia-Ukraine conflict, have prompted investors to allocate assets to precious metals for diversification.

However, this situation began to change in January when Kevin Warsh was nominated to become Federal Reserve Chair in mid-May. Markets believe he may adopt an independent stance on monetary policy and has long been opposed to quantitative easing, or at least cautious about it. Quantitative easing refers to central banks injecting liquidity into the economy by purchasing government bonds and financial assets. As concerns about the Fed’s independence waned, precious metal prices fell sharply. However, by the end of February, before the Middle East conflict erupted, prices had already started to recover.

The conflict proved unfavorable for gold, especially impacting palladium, platinum, and silver more significantly. To some extent, this seems contradictory. Consumer fuel prices like gasoline and diesel have risen sharply. According to AAA, U.S. consumers are paying nearly $1 more per gallon of gasoline compared to February, and diesel (and heating oil) is up by over $1.50. Given that gasoline and other fuels account for about 3% of the Consumer Price Index (CPI), if fuel prices remain at current levels, they could push overall U.S. inflation up by as much as 1 percentage point in the coming months.

Additionally, price increases in other regions globally could be even more pronounced. For example, Brent crude oil futures on NYMEX last trading day are trading at $15 above WTI, and Oman crude on GME is over $60 above WTI. This indicates that Europe and Asia may face more severe energy inflation shocks than the U.S.

Buy on expectations, sell on reality
In the short term, rising inflation is not favorable for precious metals, for a simple reason: central banks are beginning to shift towards rate hikes. The Bank of England has hinted at possible up to three rate increases, and the European Central Bank has warned of potential rate hikes. Although the Fed still expects to cut rates by 25 basis points after the March meeting, federal funds futures have largely discounted further rate cuts in 2026 and 2027. Compared to investors still expecting larger rate cuts, the prospect of fewer or even rate hikes makes holding fiat currency more attractive than precious metals.

To some extent, the performance of precious metals in 2025-2026 resembles the trend from 2019 to 2023. From early 2019 to mid-2020, as market expectations for Fed rate hikes were lowered and the central bank ultimately cut rates to zero during the early pandemic, gold prices soared. Then, from 2021 to 2023, as inflation rose, central banks had to implement the largest rate-tightening measures since the late 1970s, causing gold prices to fall from $2100 to $1600. This is a classic “buy the rumor, sell the fact” scenario. Gold and silver accurately anticipated inflation rising in 2019 and 2020, but when inflation actually materialized, at least in the short term, it became a headwind because precious metals tend to have a negative correlation with interest rate expectations.

From late 2024 to early 2026, the U.S. dollar generally weakened, which in part supported gold and other precious metals, as they tend to be negatively correlated with the daily changes in the Bloomberg U.S. Dollar Index. However, since the Middle East conflict erupted, the dollar has exhibited “safe-haven” characteristics, strengthening relative to most other currencies and thus suppressing precious metals. Meanwhile, the overall market has shown a de-risking trend, leading to slight declines in stock prices, cryptocurrencies, and other risk assets so far.

Future outlook
Many fundamental factors driving precious metal prices upward still exist. Most importantly, no major economy has taken measures to curb budget deficits. Additionally, the conflict may prompt many countries to further increase military spending to adapt to rapidly changing circumstances. In fact, even before the conflict, the U.S. government proposed a 50% increase or $500 billion annually in defense spending, and recently requested $200 billion in additional funds to replenish depleted ammunition stocks.

On the central bank front, some may follow the Reserve Bank of Australia in shifting towards tighter monetary policies, but the tightening is expected to be significantly less aggressive than in 2022 and 2023. In fact, some central banks, including the Bank of Japan, have delayed rate hikes due to concerns that rising oil prices could slow economic growth. As central bank interest rates peak and market expectations shift towards easing policies, precious metals like gold are beginning to break out of the consolidation range seen from 2020 to 2023. In the future, as investors reprice the likelihood of central banks restarting easing measures, precious metal prices could see a new rally, especially if core inflation remains above target levels.#贵金属承压回落