Oil tops $100 as Middle East tensions persist, while gold and silver diverge on US rates

Hassan said two forces have dominated the three markets: the conflict in the Middle East, which has disrupted physical energy supply routes, and the direction of US interest rates, which affects the appeal of non-yielding assets such as gold. Oil has largely tracked geopolitical developments, she said, while gold has been driven mainly by monetary policy, and silver by a mix of both alongside industrial demand from the solar, electronics and AI sectors.

Oil stays tied to Middle East developments

Brent crude was trading near $73 a barrel before tensions escalated in the Middle East in late February, according to Hassan. Disruption to tanker traffic through the Strait of Hormuz then pushed prices to around $120 a barrel in early March.

Brent has remained above $100 a barrel since 9 September, trading between roughly $103 and $109 by mid-month, Hassan said.

Recent disruption to Saudi Arabia's East-West pipeline, also known as Petroline, following a drone attack in mid-September, has added further pressure on prices, according to Hassan.

“The outlook for oil over the next six months will depend heavily on the direction of the conflict,” Hassan said. “Further escalation around the Strait of Hormuz or Bab Al Mandab, as well as continued Ukrainian strikes on Russian refineries, could increase the risk of a genuine supply shortage and keep prices well above $100 a barrel, particularly while reserves remain low. A durable de-escalation remains the clearest scenario that could bring prices down.”

Higher rates weigh on gold

Gold has been driven mainly by interest rates, Hassan said, because the metal generates no yield and competes with bonds and savings products that become more attractive as rates rise.

The yield on the 10-year US Treasury note crossed 5% this month, touching 5.04%, a level not seen since July 2007 outside a brief move in 2023, according to Hassan.

Hassan said pressure on gold began months earlier, as hawkish signals from the US Federal Reserve, a strengthening dollar and persistent inflation readings reinforced expectations that rates would stay higher for longer, encouraging investors to shift capital from gold into interest-bearing assets.

According to Hassan, gold reached a record of around $5,595 an ounce in January before falling 25% to 30% from peak to trough, dropping below $4,000 in late June to trade at approximately $3,960 to $3,980 an ounce.

Gold has since recovered, trading at approximately $4,310 to $4,350 an ounce by mid-September, Hassan said. The Federal Reserve's decision on 16 September to raise interest rates for the first time in over three years has introduced renewed pressure, according to Hassan.

“Gold's direction from here will depend on inflation data and whether the latest rate increase marks the beginning of a longer tightening cycle or is followed by a reversal,” Hassan said. “Persistently high rates and a strong dollar would remain challenging for the metal, while signs of easing inflation and a more accommodative Federal Reserve could restore investor demand.”

Industrial demand cushions silver

Silver initially benefited from many of the same investment flows as gold, Hassan said, as investors sought protection against inflation and looked to precious metals as stores of value.

Its rally was considerably stronger, however, because it was also supported by industrial demand from the solar, electronics and AI sectors, according to Hassan. This combination pushed silver to an intraday record of $121.67 an ounce in late January, she said, with its annual gain reaching 173% in May.

Silver has since corrected by approximately 47% from its record high as rising interest rates weighed on precious metals, Hassan said.

“Unlike investment demand, industrial demand does not necessarily fall simply because bond yields rise,” Hassan said. “Manufacturers still require silver for solar panels, electronics and other advanced technologies. This underlying demand helps explain why silver remains approximately 55% higher than a year ago, despite the recent pullback.”

Outlook

Hassan said the three commodities will continue to be shaped by different catalysts over the next six months. Oil is expected to stay closely tied to the Middle East conflict and the security of major supply routes, gold will take its direction from inflation, the dollar and the Federal Reserve's next moves, and silver will respond to those same monetary forces alongside the pace of industrial demand.

“Over the next six months, oil will follow the conflict, gold will follow the Fed, and silver will follow the Fed alongside the pace of industrial demand,” Hassan said.