Silver retraced 18% from its high, gold retraced 5%! The redefinition of precious metal pricing logic after the US-Iran conflict

Recent geopolitical developments in the Middle East have led to dramatic changes. Since Israel and the U.S. launched military strikes against Iran on February 28, the precious metals markets have experienced an extremely rare “rollercoaster” ride. According to Gate market data, spot silver surged to $98/oz in the early stages of the conflict, then sharply retreated to $83.8/oz, a decline of about 18% from the high; spot gold also fell from a peak of $5,420/oz to around $5,150/oz, a drop of approximately 5.3%. Meanwhile, market sentiment in derivatives has shifted to caution, with PolyBeats monitoring indicating that the probability of spot gold falling below $5,100/oz before the end of March has risen to 71%.

The Trajectory of Precious Metals Under Geopolitical Conflict

Sharp asset price fluctuations are the result of the interplay between facts and market interpretation. The recent rally in precious metals can be clearly divided into two phases.

Phase One (Initial outbreak of conflict): Risk aversion surges rapidly. On February 28, the U.S. and UK carried out airstrikes on Iran, which responded by blocking the Strait of Hormuz and launching missile attacks. As traditional safe-haven assets, gold and silver immediately attracted capital inflows. Spot gold successfully broke above $5,400/oz on March 2, reaching a high of $5,420/oz during the session; spot silver showed even greater resilience, rising to $98/oz. The driving logic in this phase was purely geopolitical risk premium.

Phase Two (Sentiment recedes and logic shifts): Prices sharply retreat. Just days later, market sentiment changed abruptly. On the evening of March 3, the precious metals market experienced a significant plunge, with spot gold dropping over 6% and breaking below the critical $5,000/oz level; silver plunged as much as 12% intraday. Although prices recovered somewhat over the next two trading days, by March 5, gold and silver had respectively retraced 5.3% and 18% from their conflict highs. The dominant market logic shifted from simple “safe-haven” to a more complex macroeconomic game.

Structural Divergence Behind the Data

The 18% retracement in silver far exceeds the 5.3% decline in gold, and this difference itself is a key analytical point.

The divergence in gold and silver trends primarily stems from their differing attributes. Gold’s financial qualities (safe-haven, inflation hedge, reserve asset) are much stronger than its industrial uses, so during the initial phase of geopolitical conflict, it gained a more stable “risk premium.” Silver, on the other hand, has significant industrial demand—about 50% of global silver consumption comes from manufacturing sectors such as photovoltaics and electronics. When market logic shifts from risk aversion to concerns over economic growth prospects, silver’s industrial demand outlook is directly impacted, leading to greater price elasticity and deeper declines.

Deeper structural pressures also arise from inflation expectations and the reconfiguration of monetary policy. Tensions in the Strait of Hormuz have pushed up international oil prices, with WTI and Brent crude rising intraday by over 9%. The surge in oil prices heightens fears of a rebound in U.S. inflation. The U.S. ISM Manufacturing PMI for February continued to expand; if oil prices remain high, the Federal Reserve may be compelled to maintain high interest rates longer or even tighten monetary policy again. Minneapolis Fed President Kashkari has stated that the Middle East conflict could create conditions supporting a prolonged pause in rate hikes. This shift in expectations directly diminishes the appeal of non-yielding assets like gold, becoming a core macro factor suppressing gold and silver prices.

Market Sentiment and Bull-Bear Divergence

Currently, market sentiment shows a high degree of polarization, often a precursor to increased volatility.

The mainstream bullish view remains firm. Its core logic is that long-term structural factors remain unchanged: the global “de-dollarization” trend, central banks continuing to buy gold, worsening U.S. fiscal deficits, and the dollar’s credit concerns all underpin a long-term bullish outlook for gold. Many institutions still expect gold prices to break through $6,000/oz or higher, and believe silver could again challenge $120/oz if the conflict persists.

The mainstream cautious or bearish view focuses on short-term risks. They note that gold prices had already risen over 8% in February before the conflict, pricing in geopolitical risks in advance. Therefore, news releases tend to trigger profit-taking (“buy the rumor, sell the fact”). More importantly, rising oil prices have counteracted expectations of rate cuts, which is the most direct macro reason for the recent price correction. Analysts at Dongxing Securities point out that the correction mainly results from profit-taking after the short-term risk spike and the inflationary pressures constraining monetary policy.

Examining the Narrative’s Authenticity: Safe-Haven or Inflation Hedge?

This recent market behavior offers an excellent window to scrutinize the authenticity and effectiveness of prevailing narratives. Initially, the market adopted a “safe-haven” narrative, pushing gold prices higher. But once oil prices surged, the narrative shifted to “inflation backlash,” suggesting that high oil prices would delay rate cuts, thus negatively impacting gold.

This raises a core question: Has gold’s “safe-haven” function failed?

The answer is not so simple. Gold’s safe-haven role has not disappeared; rather, short-term market contradictions have emerged. Immediately after the conflict erupted, gold did indeed serve as a safe haven (first wave of gains). But as the market begins to expect a prolonged conflict that could substantially impact the global economy—through rising oil prices, inflation, and supply chain disruptions—the core contradiction shifts from “Is it safe?” to “How bad will the economy get?” and “How will central banks respond?” The current retreat reflects market pricing in the expectation that central banks will maintain tightening to combat inflation.

Therefore, the narrative that “safe-haven assets are no longer safe” is one-sided. A more accurate description is that the market is transitioning from a “geopolitical safe-haven” theme to a “macro downside” theme. The decline does not mean gold has lost its safe-haven value; rather, new macroeconomic bearish factors (tightening expectations) are temporarily overshadowing safe-haven demand.

Implications and Impact on the Crypto Industry

While this analysis focuses on gold and silver, the evolving price logic has important forward-looking implications for the cryptocurrency market.

First, macro mirror effects. Mainstream cryptocurrencies like Bitcoin have increasingly exhibited risk asset characteristics, moving in tandem with indices like Nasdaq, but their “digital gold” narrative persists. If the U.S.-Iran conflict leads to persistent inflation, forcing the Fed to tighten, this could suppress both gold and crypto markets via liquidity tightening. Conversely, if the conflict triggers recession fears, markets might seek fully decentralized assets for hedging, potentially strengthening the long-term narrative of cryptocurrencies.

Second, geopolitical spillover effects. Tensions in the Middle East could impact global energy costs and supply of key metals (like copper and aluminum), raising costs for mining and high-performance computing hardware, indirectly affecting crypto mining profitability and hardware development cycles.

Multi-Scenario Evolution

Based on current facts and logic, we can outline three possible evolution scenarios for the precious metals market:

Scenario 1: Conflict de-escalation and stabilization (higher probability)

If the U.S.-Iran conflict remains contained without escalating into full-scale war or prolonged occupation, and the Strait of Hormuz reopens quickly, geopolitical risk premiums will dissipate rapidly. Oil prices will fall, inflation expectations will cool, and market focus will shift back to Fed rate cut timing. In this scenario, gold and silver may continue to oscillate downward, testing support levels—gold around $5,000, silver around $80.

Scenario 2: Stalemate and high-level volatility (medium probability)

If the conflict becomes deadlocked, with the Strait intermittently closed, oil prices stay elevated. Markets will worry about stagflation—rising inflation amid slowing growth. In this environment, gold’s inflation hedge and safe-haven qualities will resonate, potentially forming a new equilibrium in the $5,000–$5,500 range. Silver, affected by industrial demand and financial attributes, will be more volatile than gold.

Scenario 3: Escalation and trend breakout (lower probability)

If U.S. ground forces enter Iran or Iran takes extreme measures to block Gulf oil exports, causing sustained global oil supply disruptions, this could trigger severe inflation and recession risks. Gold would then break out to new highs, while silver might initially experience sharp volatility due to industrial demand concerns but ultimately follow gold’s upward trend.

Conclusion

Since the U.S.-Iran conflict, gold and silver have experienced markedly different retracements. This is not a failure of safe-haven logic but a shift in the market’s main trading theme from “geopolitical risk” to “inflation backlash.” Silver’s 18% decline reflects its industrial vulnerability under macro downside pressures. The future market trajectory will depend heavily on the conflict’s duration, oil price reactions, and global central bank responses. For investors, distinguishing between short-term emotional fluctuations and long-term structural value is paramount in navigating current volatility.