Looking back at previous wars that caused oil price shocks, it shows that they have a rather limited impact on the trend of precious metal prices. However, when those wars and oil price shocks lead to economic recession, precious metal prices often weaken significantly and according to Heraeus's precious metal analysts, the risk of recession is now entirely possible.
The two oil shocks in the 1970s took place in the context that the precious metal market was in an upward cycle, and prices continued to rise after the oil shock. However, when the US economy fell into recession, precious metal prices peaked and then reversed downwards.
Meanwhile, the Gulf War in 1990 occurred when precious metal prices were falling and this trend continued due to the war coinciding with the economic recession.
Conversely, the conflict in Ukraine in 2022 and the war in Iraq in 2003 both occurred about two years after the economic recession periods. At that time, the global economy was still in the process of recovery, so the oil price shock did not lead to a new recession.
Analysts believe that if a recession occurs, the prices of platinum (PGMs) and silver will be more negatively affected than gold due to higher industrial use.
These two metals depend heavily on industrial demand. Therefore, when the economy weakens, reduced demand will put greater pressure on prices than gold," the report said.
According to Heraeus, although US GDP growth has remained quite solid in the past 12 months, the situation is currently quite fragile as job data is not positive, although the unemployment rate remains stable.
Higher energy costs will continue to push prices up for both businesses and consumers - who are already under great pressure from living costs," analysts said.
They also warned: "It's been six years since the most recent recession. Meanwhile, the normal business cycle lasts about 5-6 years, increasing the risk of the economy sliding into recession, thereby pulling precious metal prices down.
The oil price shock also caused expectations of interest rate cuts in the US to be temporarily delayed. "The market has readjusted the probability of interest rate cuts after oil prices rose sharply - a factor believed to increase inflation," the report said.
According to current forecasts, the December meeting of the Federal Reserve is likely to only have one interest rate cut. The probability of only one cut or keeping interest rates unchanged has increased sharply, while the possibility of two or more cuts has decreased significantly.
However, job data shows that pressure is needed to continue to ease monetary policy. In the non-farm payroll report, 92,000 jobs were lost in February, and the data from previous months was also adjusted down. The unemployment rate increased slightly to 4.4% in February.
In addition to the US, Heraeus also mentioned changes to regulations in India allowing expansion of investment in gold and silver.
New regulations issued by the Securities and Exchange Board of India allow stock funds to invest up to 35% of assets in gold and silver.
Analysts say that this regulation will at least allow funds to hold uninvested capital in the form of gold instead of cash to avoid the risk of currency devaluation.
Silver holdings in global ETFs fell by another 6 million ounces last week, to 817 million ounces, compared to 863 million ounces at the beginning of the year.
January is usually the period when silver coin sales in the US increase sharply, and this year is no exception when the United States Mint sold more than 4.8 million ounces. Sales usually decrease in February and this year as well, but the 1.7 million ounce level is still the highest in 5 years.
Meanwhile, net buying positions in the futures contract market also increased as silver prices recovered from recent lows.
Speculators' net buying positions increased to 116.7 million ounces at the beginning of March, compared to 111.3 million ounces previously.
CME Group also reduced margin requirements for precious metal futures contracts on March 6, in which margins for silver decreased from 18% to 14% and for gold decreased from 9% to 7%.
Silver prices have now returned to the support zone around 80 USD/ounce. If this level is broken, the price may retest previous lows at 72 USD/ounce and 64 USD/ounce.
