Volatility gripped the precious metals market after months of big gains. Will investors abandon ship?
Commodity investors have been riding a wave of profits into 2025, with gold and silver on a profitable path for those seeking protect your wallets of investment.
In first place is gold, whose price has risen by about 56% and one in the year to date, measured by the reference index (GLD).
Silver soared even further, having registered a increase of 62.6% over the last year and 78.4% in the annual accumulated, measured by the reference index (SLV).
However, in the last week, both precious metals registered a trend reversal, with gold losing 2% and silver falling 5%.
This trend continued: on Tuesday afternoon, GLD was down 6% on the day, while SLV was down 7.9%, as investors readjusted their positions in precious metals.
At benchmark prices, gold was at €123,165/gram on Tuesday (21), having dropped to 118,202 on Wednesday, and being this Thursday in the 117,533 €/grama. Silver, which reached the 1.587,78 €/grama on Monday, recorded successive drops in the following days, today at €1,460.91/gram.
“The upward trend of gold and silver seems to have lost breath at the beginning of the week,” he said. Daniela Sabin Hathornsenior markets analyst at Capital.com, cited by .
“The operation had become quite saturated and it was getting too hotconsidering the levels both markets were at, so a reversal is not completely unexpected”
But investors in raw materials should not panic due to the short-term problems of gold and silver, considers Sabin Hathorn. At least not yet. There are three reasons for the recent drop of the price of the two metals, explains the analyst.
“Both gold and silver were ready for a fixso it is likely that there will be some profit takingwhich deepened the reaction”, observes Hathorn.
“The fundamentals haven’t changedwith long-term support still present. However, the strength of the rally over the past month has been somewhat unwarranted, leading to the possibility of a deeper correction following this news of positive trade developments.”
This is not the only reason whereby the prices of gold and silver reversed last week, according to the raw materials markets, with these three factors being particularly responsible for the drop in prices.
A Shanghai surprise at stake
One of the reasons why gold and silver prices are reversing is because margin requirements on the Shanghai Stock Exchange were increased last week, which forced a massive sale that spread from Asia to the rest of the world.
“The accentuation of the corrections we are seeing is an indicator that part of the current gallop was driven by speculation“, states Brett Elliottdiretor de marketing da American Precious Metals Exchange (APMEX).
The metals market is tightening
Another underlying cause of the rise in the price of silver is the shortage in physical supplywhich has not yet been relieved and which could be shaking investor confidence.
“A sharp sell-off as weaker hands and speculators are driven out of the market it wouldn’t be surprisingbut I’m not sure that would stop a new escalation, driven by physical scarcity“, notes Elliott. “What is certain is that did not stop the price of platinum“.
Also the geopolitical tension between the US and China is weighing against major metals markets. One of the reasons gold prices rose in the first place was concerns about relations between the US and China.
“This is specifically the case given speculation that China may be transferring resources from US Treasury Bonds to gold as your main safe haven”, says Wyatt McDonaldpresident of Coinfully, a services marketplace for coin collectors. “This led to an expected fall in interest rates, along with a potential decline of the dollar“.
Precious metals and other markets move and react primarily with based on what investors think will happenand not on what has already happened, says McDonald. “When new information emerges that calls these expectations into question, prices adjust“.
“Gold has become a popular trade recentlyand this is evident in the price rise we have seen so far. In this type of environment, it doesn’t take much to scare investors and motivate them to take some profits. This is most likely what we are seeing at the moment”, he concludes.
Assess your risk in the face of volatility
If the current increase in volatility in the gold and silver markets is unduly concerning, it is time to take a clear assessment of yours exposure to precious metals.
“Given the rise and uncertainty in the global economy right now, metals are likely to remain volatile,” explains McDonald.
“If you are not comfortable with this volatility, then perhaps you should reconsider a high allocation,” warns McDonald. “If you don’t mind volatilityand has a strong conviction that they will continue to increase over time, So the story is different“.
