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Gold dropped, silver dropped harder, and meanwhile the U.S. just bombed military targets on the island that handles 90% of Iran's oil exports. If that combination doesn't make sense to you, you're not alone. Today I'm walking through what's actually driving prices right now - and why the short-term pain could be setting up something much bigger.

Ok. Let’s get into it. 👇

Gold slid to around $5,020 on Friday, down roughly 1%, while silver took a harder hit, dropping 3-4% toward the low $80s. The usual playbook says war in the Middle East drives bullion higher, but right now the mechanics are working against it. Crude above $100 a barrel is forcing markets to reprice inflation, rate cuts in 2026 are fading fast, and the stronger dollar is dragging everything priced in greenbacks lower. The IEA's record 400-million-barrel emergency stockpile release barely moved oil prices - which tells you how serious this supply disruption really is.

Then Friday night happened. After markets closed, the U.S. struck military targets on Iran's Kharg Island - the terminal that handles 90% of Iran's crude exports. Oil infrastructure was spared, but Trump warned that changes if the Strait of Hormuz stays blocked. Iran responded by threatening to hit U.S.-linked oil facilities across the Gulf, and smoke was already rising from Fujairah in the UAE by Saturday morning.

None of this is priced into gold or silver yet, and yet precious metals sentiment is on the floor. The short-term dollar strength is real, but the forces building underneath - a deepening energy crisis, $100+ oil with no end in sight, and a Fed boxed in on rates - are exactly the conditions that have historically produced gold's biggest moves.

At least five tankers have been damaged, two crew members killed, and around 150 ships are stranded near the Strait of Hormuz - the narrow waterway through which a fifth of the world's oil transits, along with fertilizer feedstocks, liquefied natural gas, chemical compounds used in semiconductors, and a range of other commodities. Iran's IRGC has declared it will not allow "a litre of oil" through the strait, warning any vessel linked to the US, Israel, or their allies "will be considered a legitimate target."

Brent crude surged more than 9% in a single session, pushing above $100 per barrel, as traders priced in weeks - possibly months - of energy market disruption.

Gold, meanwhile, did something that confused a lot of people.

It fell.

After hitting $5,423 on Hormuz news, gold gave back more than 6% in days, dropping to around $5,040. If this is supposed to be the ultimate safe-haven, why is it selling off while the Middle East burns?

The answer matters, because the confusion is creating an opportunity.

Why Gold Dropped

Three things hit simultaneously. The US dollar surged as investors fled to the reserve currency - the classic reflex in a geopolitical shock. Treasury yields pushed higher as inflation fears pulled forward expectations of tighter Fed policy. And in a margin-call environment, traders liquidate what they can, not what they want to. Paper gold positions were among the first things flushed.

Oil prices themselves swung violently - WTI briefly plunged 19% in a single session before recovering - as conflicting reports about Strait of Hormuz shipping whipsawed every commodity market. Gold got caught in that volatility.

Silver fared worse. Industrial demand concerns layered on top of the energy shock, and silver tends to amplify gold's moves in both directions. That's its nature.

None of this changes gold's underlying position. It just created noise.

The Setup

Goldman Sachs economists modeled a scenario where Brent averages $98 through March and April, raising their US inflation forecast by 0.8 percentage points to 2.9%, while trimming GDP growth to 2.2%. In their more extreme scenario - oil averaging $110 for a sustained period - inflation hits 3.3% and recession odds climb to 25%.

The IEA estimates the conflict will cut global oil supply by roughly 8 million barrels per day in March, accounting for the near-closure of the strait and the scramble to reroute supply elsewhere.

This is a stagflationary setup. Rising costs, slowing growth, and a Fed with its hands tied - gold has run well in that environment before. The Gulf War in 1990: a 15% rally. Russia's invasion of Ukraine in 2022: another 15%. In both cases, early volatility shook out weak hands before the metal resumed its move higher. The $5,000 area - where institutional buying has visibly stepped in - is now acting as a floor.

Year to date, gold is up roughly 15-20%, outpacing most asset classes even after the recent correction. Physical buyers haven't disappeared. Shanghai buyers are reportedly paying $30 premiums over London spot. Retail demand for bars and coins has accelerated.

Central banks aren't slowing their purchases either. They've been buying at multi-decade highs, driven by a simple calculation: in a world where dollar-denominated assets can be frozen overnight and geopolitical fractures are widening, gold carries no counterparty risk. No government can default on it, no court can seize it.

The US and global economies may be able to pull through this war even if oil prices remain elevated - but until the Strait of Hormuz reopens, markets remain exposed.

Gold doesn't need a resolution to keep moving higher. It needs uncertainty to persist. Right now, uncertainty is the one thing in plentiful supply.

The pullback from $5,423 stung. But it's still up sharply on the year, still being accumulated by the world's largest central banks, and still sitting on a structural bid driven by de-dollarization, deficit spending, and a geopolitical order that looks less stable by the day.

A correction in a bull market is still a bull market.

That’s all for this Sunday, folks! I’ll see you on Tuesday.

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Rick Adams
Founder, GoldBuzz
rick@goldbuzz.com