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Central banks on hold amid inflation risks, gold and silver under pressure

Following the Federal Reserve’s decision to leave rates unchanged, major central banks, such as the ECB, SNB, the Bank of England, as well as China’s central bank kept their key interest rates untouched in the face of increased uncertainty of what will be the inflationary impact of the progressing war in the Middle East. While stocks on Wall Street and in Asia edged mostly lower, as energy jitters persist, gold and silver temporarily came under severe pressure, heading for a sharp weekly decline. 

  • Data
  • Autore Alessandro Fezzi, Content & Publications
  • Tempo di lettura 5 minuto

Gold
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Asia-Pacific equities traded unevenly on Friday as investors weighed the impact of the Middle East war on energy supply and broader risk sentiment following overnight losses on Wall Street. Iran’s missile strike on Qatar’s largest gas plant on Thursday, which QatarEnergy estimated had removed 17% of the country’s LNG export capacity for three to five years, fuelled a jump in US natural gas and gasoline prices, while Brent crude and US West Texas Intermediate futures retreated after earlier gains. Saudi Arabia warned that oil prices could exceed USD 180 per barrel if supply disruptions persist. Regional equity moves were mixed, with Australia’s S&P/ASX 200 and Hong Kong’s Hang Seng index weaker while China’s CSI 300 and South Korea’s Kospi advanced. 

Meanwhile China's central bank maintained its key loan prime rates for the tenth straight month, as widely expected. The People's Bank of China maintained its one-year loan prime rate at 3%. Similarly, the five-year LPR, the benchmark for mortgage rates, was retained at 3.5%.

US equities retreat following the Fed’s decision and Middle East turbulences

US stock indices ended lower on Thursday, but losses narrowed later in the session as oil prices pulled back from an intraday spike driven by escalating tensions in the Middle East. The Dow Jones Industrial Average closed down 0.4% at 46,021.43 points after having fallen as much as 1% earlier, while the broad S&P 500 and technology-heavy Nasdaq 100 slipped 0.3% to 6606.49 and 24,355.28 points, respectively. Cyclical and commodity-related stocks were particularly weak, with mining and metals shares pressured by falling gold, silver and industrial metals prices.

Gold set for sharp weekly decline

Gold prices recovered somewhat in Asian trading on Friday, with spot prices up 1.2% and futures gaining 2.2%, but the metal remained roughly 8% lower for the week, marking its steepest weekly drop since early 2020. The sell-off accelerated on Thursday after several major central banks warned that the Iran war’s impact on energy markets could fuel inflation and delay interest rate cuts, a combination that is typically unfavourable for non-yielding assets such as gold. Safe-haven flows into gold were also eclipsed by a stronger US dollar and higher Treasury yields. Other precious metals showed a similar pattern, with silver and platinum edging higher on Friday but still down 9.8% and 2.9%, respectively, for the week.

ECB holds rates as Iran war clouds outlook

The European Central Bank (ECB) left interest rates unchanged and warned that the war in Iran had made the outlook “significantly more uncertain”, with higher energy costs creating upside risks to inflation and downside risks to euro-area growth. The central bank said the conflict and the closure of the Strait of Hormuz were likely to push up near-term inflation through higher oil and gas prices, while the medium-term impact would depend on the duration and intensity of the shock and how it feeds through to consumer prices and activity. The ECB raised its medium-term projections for headline inflation, now expecting an average of 2.6% in 2026, 2% in 2027 and 2.1% in 2028, compared with forecasts just below 2% for 2026 and 2027 in December, even as recent data showed euro-area inflation at 1.9% in February. 

European equities fell sharply on Thursday as Iran’s attacks on liquefied natural gas facilities in Qatar and threats of US retaliation fuelled fears of an escalating energy conflict, pushing oil and gas prices higher and reviving concerns about inflation and growth. The euro area’s EuroStoxx index dropped 2.1%, while Switzerland’s SMI lost 2.4% 

Bank of England holds rates amid increased inflation risks

The British central bank left its key rate unchanged at 3.75% in a unanimous decision, after the war in Iran and related energy price spikes clouded the UK inflation and growth outlook. The BoE warned that the Middle East conflict had driven a sharp rise in global energy and commodity costs that will push UK fuel and utility bills higher and could feed through into wages and broader prices if elevated levels persist, after domestic disinflation had previously been gaining traction. 

Sweden’s Riksbank maintained its benchmark rate at 1.75% but stressed the need for vigilance as higher energy costs are expected to lift CPIF inflation from 1.7% and weigh on near-term growth. 

SNB keeps rates at zero, flags global risks

The Swiss National Bank (SNB) left its policy rate unchanged at 0% on Thursday, as widely anticipated, and signalled a greater readiness to intervene in foreign exchange markets to counter any rapid and excessive appreciation of the Swiss franc that could threaten price stability. The central bank noted that its inflation forecast for the coming quarters is somewhat higher than in December due to rising energy prices, but judged medium-term inflation pressures to be broadly unchanged, with the latest February reading at 0.1% and the entire projection horizon remaining within its 0% to 2% price stability range. Policymakers highlighted that uncertainty has risen markedly with the Middle East conflict, warning that global growth is likely to slow temporarily and that higher-than-assumed energy prices, renewed supply chain disruptions and increased geopolitical and trade tensions pose significant downside risks. 

Corporate and economic calendar

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: German producer prices (08:00), Eurozone trade balance (11:00), EU Summit (11:00), Canadian retail sales (13:30). 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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