Gold and silver both took a sharp hit this week, reversing recent gains as renewed conflict in the Middle East sent shockwaves through commodity markets. Here's what's driving the move, and what it means for the inflation and interest rate story playing out across the world's major economies.
Prices Drop Sharply
Gold fell 3.1% on Monday, sliding to around AUD $5,784 an ounce, down from over AUD $5,830 just a week earlier. Silver was hit even harder, dropping 3.8% to roughly AUD $84 an ounce.
The trigger was a fresh round of missile strikes between the US and Iran over the weekend. Oil prices jumped on the news, and that's the real story here: higher oil feeds directly into inflation expectations, which raises the odds of further interest rate hikes, which pushes real yields higher, and higher real yields are bad news for gold and silver, which pay no yield of their own.
It's worth remembering the scale of the pullback from this year's highs. Gold is still about 27% below its January record above AUD $8,000 an ounce, and silver remains roughly 52% off its January peak. So while the last few days have been rough, the medium-term picture is one of a rally that cooled considerably well before this latest bout of volatility.
All Eyes on Inflation Data
The next few days are pivotal. US CPI data for June lands soon, alongside the Cleveland Fed's early read on July inflation, and new Federal Reserve Chair Kevin Warsh is making his first appearance before Congress around the same time. Warsh has been sending mixed signals, recently calling inflation "too high" while also suggesting the risks have eased over the past month. Markets will be parsing his testimony closely for clues on where rates go from here.
Central Banks Keep Stacking Gold
Away from the day to day price swings, the longer-run trend in official gold reserves hasn't changed: central banks are still buyers, on net, by a wide margin.
China's central bank added another 15 tonnes to its reserves in June, its biggest single-month purchase this year and the 20th consecutive month it has added to its gold holdings, part of a broader push to reduce reliance on the US dollar. Poland remains the largest buyer year to date with 64 tonnes added, and Uzbekistan isn't far behind with 41 tonnes. On the other side of the ledger, Turkey and Russia have been net sellers this year, likely reflecting domestic fiscal pressure rather than any loss of conviction in gold as a reserve asset.
Interest Rates Turn More Hawkish
The broader rates picture has shifted in a hawkish direction across several major economies:
United States: The Fed has held its benchmark rate at 3.50%–3.75% for four straight meetings, but the tone has changed. Under Warsh, the Fed's 2026 inflation forecast was revised up sharply, and markets have gone from pricing rate cuts to bracing for the possibility of several hikes before year-end.
Eurozone: The ECB raised its deposit rate a quarter point to 2.25% in June, explicitly citing inflation pressure flowing from the Middle East conflict. Its next decision lands July 23.
UK, Japan, Australia: No major fresh rate moves in the last 24 to 48 hours, though all three remain firmly in the market's sights given the same oil-driven inflation pressures affecting everyone else.
Why It Matters
The through-line across all of this is that Middle East conflict is now doing double duty as both an inflation accelerant and a rate-hike catalyst, and it's doing so at the same time it's hitting gold and silver prices, rather than lifting them the way a classic inflation hedge normally would. That's an unusual dynamic, and it's worth watching closely into this week's CPI print to see whether it holds or gold reasserts itself as the safe haven play once the initial shock fades.
Figures converted from USD at approximately 1 USD = 1.44 AUD. Market conditions move quickly — treat pricing as indicative at time of writing.