Key Takeaways
Gold and silver prices declined Friday as traders weighed the inflationary impact of the war in Iran, which has pushed average US gasoline prices up by $1.56 a gallon since the conflict began 75 days ago.
"Should the conflict actually find some path to resolution, then I think prices could come down," Abhi Rajendran, a nonresident fellow at Rice University’s Baker Institute of Public Policy, said. "I don’t know if it’s going to be quick and look like before-the-conflict prices were."
The conflict has choked off nearly 20 million barrels of daily oil exports through the Strait of Hormuz, representing a quarter of global seaborne trade. This supply shock drove the average US price for regular gasoline to $4.50 per gallon, a 53% increase from $2.94 before the war, according to the Energy Information Administration.
The sustained energy price shock is fueling fears that central banks will maintain aggressive monetary policy, increasing the opportunity cost of holding non-yielding assets like gold. The EIA projects gasoline will average $3.88 through 2026, suggesting inflationary pressures may persist.
The war's impact extends beyond the gas pump, disrupting global supply chains and feeding inflation worldwide. In Malaysia, a key trading nation, headline inflation rose to 1.6 percent in the first quarter, with officials citing heightened downside risks from the Middle East conflict. The war is also disrupting the supply of sulfuric acid, the world’s most common chemical, threatening price spikes across a wide range of industries, according to a report in Chemical & Engineering News.
This environment has inverted the typical safe-haven trade, where gold rallies on geopolitical uncertainty. Instead, investors are selling precious metals on fears that sustained inflation will force central banks to keep interest rates higher for longer.
Energy experts are cautioning that a return to pre-war energy prices could take much longer than politicians suggest. Patrick De Haan, head of petroleum analysis at GasBuddy, said it could take "beyond a year" for prices to fully normalize once the conflict ends.
Skip York, another fellow at Rice’s Baker Institute, noted that prices tend to go "up like a rocket, but down like a feather." He explained that retailers are quick to pass on wholesale price increases but are slower to cut them, waiting for sustained downward trends. York believes a return to $3-per-gallon gasoline may be a "2027 resolution."
This contrasts with assurances from President Donald Trump that prices will "drop like a rock" as soon as the war is over. The administration has proposed a temporary suspension of the 18.4-cent federal gasoline tax, but experts warn this could stimulate demand and perversely keep prices elevated.
This article is for informational purposes only and does not constitute investment advice.
