By: Kitco

The outbreak of war with Iran, fresh uncertainty surrounding Trump’s tariffs, and higher than expected U.S. inflation are all supportive of gold and silver prices on paper, but both metals exhibit overbought conditions and are due for a break, according to Rhona O’Connell, Head of Market Analysis for EMEA & Asia at StoneX.

“[T]he geopolitical environment has continued to be an over-arching influence on the precious metals, predominantly gold and silver, although platinum and palladium have also been whipped by outside influences,” she wrote in a note on Monday. “Obviously the most recent and dramatic development has been the escalation of the conflict in the Middle East.  The attacks on Iran and the retaliation around the Middle East have boosted gold and silver as well as taking oil to a different level; the former reflect risk-aversion while oil is reacting to a potential supply shock.”

“Further support came from the Supreme Court’s ruling on the International Emergency Economic Powers Act (IEEPA) tariffs and the subsequent massive rise in litigation, not to mention uncertainty’” she added. “Then President Trump’s stated intention to impose widespread 10% tariffs under S 122 of the Trade Act of 1974 has also drawn legal opinion that this, too, would be illegal.”

O’Connell also noted the worrying rise in producer-side inflation, with U.S. PPI posting its largest monthly increase since January 2025, as another support for gold prices.

“In the background, gold ETFs have made small additions this year but the CFTC net long positioning is well down,” she wrote. “Silver ETFs have seen some chunky redemptions while CFTC has seen some long-side nibbling and plenty of short covering, but here the net long of 1,395t is only 29% of the12-month average. On COMEX, silver inventories have come off sharply over the past few weeks and, at 11,207t, are down by 5,323t from the end-September levels and getting back towards the more normal 9,000-10,000t levels.”

“This may take some of the volatility out of the market as it helps to ease London’s position,” she added. “Gold inventories have come off by 91t or 8% since the start of the year and at 1,036t, are 11% lower than the average for the whole of 2025.”

Based on the above, O’Connell said she sees “little exchange-based speculative overhang in either metal, reflecting profit taking in silver in January and steady liquidation on COMEX.”

“Now this can be argued either way; a) there is less scope for selling into strength than hitherto or b) stakeholders think the markets are overdone,” she wrote. “The answer is probably a combination of the two. Gold is at the top of its uptrend and the RSI is approaching 70. Silver is sitting on a Fibonacci retracement level after its steep correction. Putting all these together suggests that gold and silver may have done enough for now and need to unwind overbought conditions, but the downside remains limited. Barring further geopolitical escalation, it is time for a breather.”

“In this febrile atmosphere the strength in gold and silver should be sustained until conditions settle down,” O’Connell said. “Until then the markets will remain in risk-off mode.”

Gold and silver prices continue to reflect a broader safe haven rush into the U.S. dollar, with spot gold down 4.38% to trade at $5,088.83 per ounce, while spot silver has fallen all the way to $82.036 for a loss of 8.18% on the session.