Gold, Silver Crash On MCX As Oil Surge, War Tensions Rattle Bullion

Gold and silver prices witnessed sharp selling pressure on the Multi Commodity Exchange (MCX) on Monday as rising geopolitical tensions in West Asia pushed crude oil prices sharply higher, reviving concerns around inflation and strengthening expectations that global interest rates could remain elevated for longer.

In the domestic futures market, MCX silver contracts for July 2026 delivery fell ₹5,643 or 2.1% to ₹2,66,243 per kilogram. Gold futures for June 2026 delivery declined ₹1,000 or 0.6% to ₹1,57,547 per 10 grams. The weakness came after both precious metals ended the previous trading session in the flat-to-negative range.

Oil Shock And War Escalation Trigger Selling

The fresh decline in bullion prices followed a major escalation in the West Asia conflict after a drone strike caused a fire at a nuclear facility in the United Arab Emirates. The incident added to concerns that tensions in the region may intensify further and affect critical global energy supply routes. Markets reacted swiftly to the development, with crude oil prices surging as traders priced in the possibility of prolonged disruptions.

Brent crude jumped more than 2% to trade above $111 per barrel, touching its highest level in nearly two weeks. Fresh drone attacks targeting the UAE and Saudi Arabia, combined with increasingly aggressive rhetoric from Washington and Tehran, have added to fears that the geopolitical situation may deteriorate further. UAE officials said they were investigating the source of the attack and reserved the right to respond to what they described as terrorist actions.

The rise in crude oil prices immediately triggered fresh inflation concerns across global markets. Higher oil prices generally feed into transportation, manufacturing and input costs, creating broader pricing pressure across economies. Investors fear that another round of energy-led inflation could delay expectations of monetary easing by major central banks.

This shift in sentiment weighed heavily on precious metals. While gold typically benefits during periods of geopolitical uncertainty, the inflation impact and rising expectations of tighter monetary policy outweighed its safe-haven appeal in the current environment.

Dollar Strength And Fed Expectations

Another major factor behind the weakness in bullion prices was the strengthening of the US dollar. Safe-haven demand for the dollar increased amid escalating geopolitical uncertainty, pushing the dollar index higher. A stronger US currency generally creates pressure on commodities priced in dollars, including gold and silver.

The dollar index gained more than 0.10%, making gold costlier for buyers using other currencies. This tends to reduce international demand and weakens the attractiveness of bullion in overseas markets. The strengthening dollar also reflected broader caution among investors regarding global growth and inflation risks.

Markets are increasingly factoring in the possibility that the US Federal Reserve may maintain a higher-for-longer interest rate approach. Recent inflation data from the US showed retail inflation recording its biggest annual increase in three years, raising concerns that policymakers may have limited room to ease rates.

Higher interest rates reduce the attractiveness of non-yielding assets such as gold because investors often prefer interest-bearing alternatives like government bonds and fixed-income products during periods of elevated yields.

Hormuz Crisis Continues

Developments surrounding the Strait of Hormuz remain another major concern for commodity markets. US President Donald Trump warned Iran to act quickly after both sides failed to make progress in resolving the conflict. Markets continue to monitor developments closely as tensions remain elevated.

The Strait of Hormuz remains one of the world's most important shipping routes for oil and gas supplies. Nearly one-fifth of global crude oil and liquefied natural gas shipments pass through the route, making any disruption a significant concern for global markets and energy security.

Reports suggest Trump is expected to meet senior national security advisers this week to discuss possible military options linked to Iran. Meanwhile, Iranian Foreign Minister Abbas Araqchi said Tehran still has "no trust" in the United States and would return to negotiations only if Washington demonstrated seriousness.

The absence of meaningful diplomatic progress has maintained uncertainty across commodity markets. Investors remain cautious as prolonged geopolitical tensions could continue influencing oil prices, inflation expectations and broader risk sentiment.

Long-term Outlook

Despite the recent correction, several global brokerages continue to remain constructive on gold's long-term prospects. Analysts believe geopolitical tensions, macroeconomic uncertainty and broader financial market risks could eventually revive demand for safe-haven assets.

However, near-term investor demand indicators remain weak. Several institutions have trimmed their forecasts amid concerns that elevated interest rates and softer investment flows may continue weighing on prices over the coming quarters.

JP Morgan lowered its average gold price forecast for 2026 to $5,243 per ounce from $5,708 earlier. The brokerage said investor interest has weakened considerably, with demand indicators showing signs of stagnation.

According to the brokerage, futures positioning, ETF flows and managed money activity remain subdued. Still, analysts expect gold prices to gradually recover through 2026 as broader macroeconomic risks and geopolitical uncertainties persist.