Gold and silver sell off as inflation fears grip global markets

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Gold and silver joined a broad sell-off on Thursday, with the metals shedding 2% and 5.5%, respectively, as fears about the Iran war and inflation gripped global markets.

At 5:36 a.m. ET, spot gold was down 2% at $4,718.60 an ounce. Front-month gold futures were down 3.8% at $4,709.90.

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Gold prices

Spot silver was 5% lower at $71.53 an ounce, while silver futures lost 7.7%, paring earlier losses to settle at $71.62.

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Silver prices

The moves in gold and silver come amid broader risk-off sentiment, which has seen global equities and government bonds fall in tandem. European stocks moved sharply lower in early trade, while futures pricing also points to U.S. equity markets falling at the open.

Investors are monitoring the ongoing U.S.-Iran war as the conflict heads towards its third week. The war is fueling concerns about an energy shock that will add inflationary pressure to economies across the globe. Oil and gas prices spiked on Tuesday after energy facilities in Iran and Qatar were hit by strikes.

Central banks are also watching developments in the Middle East. The U.S. Federal Reserve held rates steady on Wednesday and cited “uncertain” impacts arising from the conflict. The Bank of Japan also held interest rates steady, noting that inflation risks now are tilted to the upside due to the Iran war.

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Economy

A series of central banks in Europe, including those of the U.K. and the euro zone, are due to update their respective monetary policies later on Thursday.

Switzerland’s central bank also flagged the war in Iran as it announced its decision to hold its key policy rate at 0%. The Swiss National Bank said its willingness to intervene in the foreign exchange market was rising as the war dragged on.

Paul Surguy, managing director and head of investment management and proposition at Kingswood Group, told CNBC in an email on Tuesday that gold has been “the beneficiary of a fair tailwind for some time,” but that the broader backdrop may be encouraging investors to rethink their holdings of the metal.

“Global markets have seen broad selloffs as investors search for the quickest assets to sell, perhaps we are now seeing the next leg of this phase where the perceived safe haven assets are sold to fund purchases of those that may have overacted to the current situation,” he said.

“With airspace and shipping lanes also closed the transmission of gold will also now be more expensive, or even impossible — worth remembering that in buying the ultimate safe haven asset you are holding something physical — which needs to be in possession in order to truly offer that safety.”

Iain Barnes, CIO at British wealth management firm Netwealth, told CNBC that increased gold price volatility reflects the precious metal’s wider inclusion as a popular financial asset across investment portfolios.

“Financial, rather than fundamental investors are the marginal buyers of gold and we see them reducing risk across the board,” he said in an email. “This is especially true for fast-moving, leveraged funds which are faced with higher borrowing costs.”

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