Gold and silver have seen prices dip this week, despite further escalation of the conflict across the Middle East. Markets have reigned in expectations over how soon and how deep US interest rates will be cut, pushing the dollar higher, and precious metals lower.

180124 USD Chart

The gold price has pulled back so far in January due to a stronger dollar.

Last week saw the US and UK launch strikes against the Houthis in Yemen in response to attacks on ships in the Red Sea. This week has also seen strikes by Iran into Pakistan, with retaliatory strikes launched by Pakistan overnight. The US has also continued to launch strikes against Houthi targets in Yemen. The region remains a powder keg, and the conflict is spilling into more and more countries, with no end seemingly in sight.

While war often drives safe haven demand for gold, the price has instead come under pressure from a stronger dollar. The US dollar index hit a monthly high yesterday, as markets revise their hopes for a rate cut from the Fed. Higher US inflation in December dashed hopes that the Fed would start cutting as soon as March, with Q2 now more likely.

Fed officials have continued to state that they will not cut rates until they see significant progress on inflation, which remains double their current rate target. This is likely to be the case in the UK and across Europe as well, who were later to start hiking rates, and find themselves behind the Fed.

The stronger dollar has seen gold fall from $2,078 / £1,640 at the start of the month, to $2,010 / £1,585 at the time of writing, a fall of more than 3%. Silver has fallen from $24 / £19 to $22.60 / £17.80 in the same period, a drop of 6%.

Given the short and medium-term outlook remains positive for both metals, investors seem happy to buy the dip, and we have seen an increase in demand from those looking to buy before the next rally in prices.