Flight to Safety: Oil, Gold Surge as US-Iran Tensions Rise

A WEEK MARKED BY FLIGHT TO SAFETY

The week ending February 21 was largely about global investors preferring a "flight to safety." As the US Armada sailed closer to Iran, it now looks like we may be hours away from a full-fledged war between the US and Iran. For the oil markets, the bigger concern is that, push comes to shove, Iran may be forced to blockade the Straits of Hormuz, creating chaos in global oil markets. Brent Crude prices have already rallied nearly 20% in last 2 weeks.

This move was in sympathy with the rising risks to oil supply from any blockade of the Straits of Hormuz. It also meant that global investors opted for a more predictable pivot towards safer havens, and emerging markets like India had to bear the brunt of this risk-off shift. Not surprisingly, the week saw precious metals like gold and silver surging, even as the dollar index hardened on capital flight and monetary policy hawkishness.

FINANCIAL METRICS REFLECTED FLIGHT TO SAFETY

The table below captures the gist of how the financial metrics moved in the week; and why?

Here is a look at the item-wise trend of the key macro metrics pertaining to India and the globe and how it could impact the macro story.

HIGHER PCE INFLATION IN US RULES OUT RATE CUTS

The US 10-year benchmark yields was up by nearly 3 bps from 4.056% to 4.085% for the week. That was not surprising, especially after the December 2025 PCE inflation data clocked a higher-than-expected 2.9%. This is a full 90 bps higher than the Fed target rate. With the Fed already suggesting that it will shift focus from jobs and growth to inflation, markets have ruled out any rate cuts in March also. Even the CME Fedwatch is hinting at just 50 bps rate cut by the end of 2027, so it is not surprising that US bond yields have gone up.

POSITIVE BIAS IN DOLLAR INDEX FOR THE WEEK

The Dollar Index showed notable strength, while oscillating between 96.88 and 98.08. Despite Q4 GDP growth slowing to 1.4% (attributed to temporary government spending cuts due to the US shutdown), the dollar has retained its exorbitant privilege. Even with Kevin Warsh likely to take over as the next Fed chief, markets do not see too much leeway to cut rates from here. That weakened the rupee closer to ₹90.73/$.

INDIAN BONDS YIELDS UP ON ₹17.2 TRILLION BORROWING OVERHANG

Domestic 10-year yields bounced back to 6.725%, albeit marginally. The market is currently factoring in the massive ₹17.2 Trillion borrowing target for FY27 at a gross level, although the net borrowings is much lower. For now, the RBI MPC also appears to be hesitant to cut rates as rate cuts can exacerbate the pressure on the Indian rupee. India bond yields may stay at elevated levels as rate cut cycle also gets to neutral level.

BRENT CRUDE: CROSSES $72/BBL ON GEOPOLITICAL TENSIONS

Brent Crude decisively crossed the $72/bbl mark, peaking at $72.34/bbl. Tensions in the Straits of Hormuz, a transit point for 30% of global oil trade, was the trigger for oil prices to jump up. In fact, crude is now up by a full 20% from the recent lows of $60/bbl. For India, this does pose a peculiar problem.

India relies on imports for sourcing nearly 85% of its crude needs on a sustained basis. The real impact on the trade deficit and the fiscal deficit would be seen only when the price of Brent crude crosses $80/bbl; but that is when it actually starts to pinch the Indian economy. The bigger concern is that high oil prices can also weaken the Indian rupee.

GOLD AND SILVER; SAFE HAVEN PLUS INDUSTRIAL DEMAND

Gold is still far off from its peak price of $5,595/oz, but it has recovered sharply in recent weeks to $5,104/oz. The structural bull case remains intact for gold as safe haven buying is always just round the corner. The India gold price was steady this week at ₹1,57,498 per 10 grams for 24 Carat gold; gaining from gold spike and weak rupee.

However, it was silver that was the star of the week, gaining nearly 10.5% to close at $84.65/oz. More than safe haven buying, silver is benefiting from a spike in industrial demand (driven by AI/Big Data, data centres, and EV infrastructure). Gold-Silver ratio tightened from 65x to 60.3x, indicating silver was the dominant precious metal.

LAST WORD – KEY TAKEAWAYS FOR INVESTORS THIS WEEK

Here is summing up the metrics for the weeek.

1. Geopolitical Risk Premium is Back in the market as US and Iran indulge in sabre rattling. The impact is seen in risk-off flows and oil price spike.
2. After struggling for the last few weeks, silver found its mojo. The gold silver ratio of 60.3 indicates that silver has been the outperformer in precious metals this week.
3. Bond yields in India and the US were driven by inflation risks and possible end of rate cut cycle. It was PCE inflation in the US and it was the new CPI series in India.
4. The untold story of the week was of rupee resilience. Amid FPI outflows, geopolitical risk, and rising crude prices, the INR weakened just 20 paisa against the US dollar.