Gold And Silver Experience Sharp Sell‑Off As Global Rate‑Hike Expectations Intensify

On the evening of March 19, spot gold and silver suffered a panic‑driven sell‑off, with silver plunging as much as 12% and gold falling over 5%. The abrupt decline coincided with a marked rise in market expectations for interest‑rate increases by major central banks.

The Bank of England signaled it stood “ready to act at any time” to counter inflationary pressures stemming from the Middle East conflict, prompting traders to increase bets that a rate rise could occur as early as next month. The nine‑member Monetary Policy Committee voted unanimously to maintain the policy rate at 3.75%, the first fully unanimous decision in four and a half years. Minutes from the meeting indicated a material shift in policy tone, citing disruptions to oil production in key producing regions and impediments to tanker traffic through the Strait of Hormuz.

Governor Andrew Bailey warned that policy must address the risk of more persistent CPI inflation in the United Kingdom and reiterated the Bank’s mandate to return inflation to the 2% target. Markets reacted quickly to the hawkish pivot, fully pricing in two 25‑basis‑point hikes this year and assigning a significant probability to a third. The committee removed language from its February statement that had suggested the benchmark rate might be lowered further. Even some of the committee’s more dovish members, including Swati Dhingra, acknowledged that sustained energy‑supply shocks could necessitate rate increases.

Peel Hunt Chief Economist Callum Pickering observed that a protracted conflict would raise the likelihood of Bank of England tightening. After Governor Bailey cautioned against overreading the near‑term outlook, traders slightly trimmed their bets; the market now anticipates roughly 60 basis points of tightening this year, down from prior expectations of 78 basis points. The United Kingdom’s dependence on imported energy leaves it particularly exposed to Gulf supply disruptions, with European natural‑gas futures spiking as much as 35% and Brent crude briefly touching USD 119 per barrel, levels approaching the 2022 peak.

Seema Shah, Chief Global Strategist at Principal Asset Management, commented that the committee’s rapid shift underscores the magnitude of inflationary pressure. In Europe, German government bonds continued to decline after the European Central Bank held rates steady, with markets pricing in about 70 basis points of tightening for the year. The Federal Reserve likewise left rates unchanged, and Chair Jerome Powell indicated that any decision to cut would depend on the inflation trajectory; swap markets have largely discounted U.S. rate cuts for the year.

With the Middle East conflict ongoing and oil prices rising again, bond traders have largely abandoned expectations of U.S. rate cuts and have begun hedging for the possibility of further tightening in the months ahead. Tom di Galoma, Managing Director at Mischler Financial Group, said the Bank of England decision has driven market expectations toward a 50‑basis‑point hike in 2026, noting that European bond markets are experiencing steep declines and U.S. Treasury yields are rising. He added that current flows are dominated by selling rather than buying, with sentiment shaped by the view that the Iran‑related conflict could persist for months rather than weeks.