Rising odds of multiple rate hikes in 2026 are responsible for their decline. Gold and silver tend to benefit from lower rates, not higher rates. That’s because the precious metals don’t pay out interest, making them less attractive compared to interest-bearing assets when rates are higher. In other words, the opportunity cost of holding gold and silver goes up with higher rates.
Rising Rate Hike Odds Undercut Gold and Silver
By year-end, the most likely outcome at 36.2% is for the Fed to hit rates twice, according to the CME FedWatch tool. The second most likely outcome is for a single hike at 33.7%, while the odds of three hikes sit at 16.4%. Furthermore, the odds of one rate cut, which benefit gold and silver, are at 0%.
Many investors were caught off-guard by gold and silver’s decline following the onset of the U.S.-Iran war. The precious metals have only continued to fall after the two sides reached a memorandum of understanding (MOU) that jumpstarted a 60-day ceasefire and negotiation period.
Gold and silver are viewed as safe-haven assets. As a result, investors rationalized that they would provide an edge of safety in response to the war. However, that failed to occur, as their safe-haven appeal was offset by rising rate hike odds in response to higher inflation. Inflation risks jumped due to Iran shutting down the Strait of Hormuz, which handles roughly 20% of global oil flows.Disclaimer & DisclosureReport an Issue
