Gold prices rose 1% and silver gained 2% on Friday as crude oil surged above $90 per barrel, triggering safe-haven demand amid intensifying geopolitical tensions involving the US, Israel, and Iran.
Equity markets fell sharply as investors rotated into traditional hedges against inflation and uncertainty. Treasury yields jumped to their highest levels since April 2025, reflecting dual concerns about rising energy costs and persistent inflation.
The oil shock compounds weaker-than-expected jobs data and dollar weakness, raising the specter of stagflation—simultaneous high inflation and slow growth. This scenario poses a challenge to the Federal Reserve's Ample Reserves Framework, which manages liquidity through interest on reserve balances rather than reserve quantity targets.
The crisis has reignited debate over potential coordination between the Treasury and Federal Reserve. Former Fed Vice Chair Richard Clarida suggested a new accord could provide "a framework for the Fed working in tandem with the Treasury and perhaps also with the housing agencies Fannie Mae and Freddie Mac to shrink the size of its balance sheet."
Tim Duy, chief economist at SGH Macro Advisors, warned such coordination could undermine central bank independence. "Rather than insulating the Fed, it could look more like a framework for yield-curve control," Duy said. "A public agreement that synchronizes the Fed's balance sheet with Treasury financing explicitly ties monetary operations to deficits."
The Bank of England's Monetary Policy Committee noted Friday that "risks to inflation from weaker demand and a loosening labour market remain, and the risk of persistent inflation has become less pronounced." The committee indicated "Bank Rate is likely to be reduced further, though decisions on additional easing would become a closer call."
Former Congressman Ron Paul called the 1971 decision to end the gold standard "one of the biggest things that ever happened in monetary history," as precious metals reassert their role as crisis hedges.
Markets now face a difficult balance: rising energy costs that fuel inflation while weak economic data signals slowing growth. The combination typically forces central banks to choose between fighting inflation and supporting employment—a choice that becomes harder when geopolitical risks drive commodity volatility.