Gold and silver rally stumbles but fundamentals remain supportive

Precious metals rally under question

Gold and silver have suffered a sharp decline in recent days, getting caught in a perfect storm. The sell-off was primarily driven by a recovering USDOLLAR and easing tensions between the United States and Iran, depriving the two precious metals of two potent drivers.

The greenback posted a relief rally after President Trump nominated Kevin Warsh to succeed Fed Chair Powell ^[1]. This was seen as a status quo and less dovish choice than feared, easing concerns over central bank independence and potentially limiting scope for monetary easing. Geopolitical tensions also cooled after President Trump indicated that Washington and Tehran were in talks ^[2], raising hopes of a nuclear deal.

After a blistering rally, XAU/USD and XAG/USD are vulnerable to profit taking and heightened volatility. Higher margin requirements by the CME appear to have contributed to this shift ^[3], while speculative positioning intensifies price swings. The Bank for International Settlements has warned of gold's shift towards speculative behaviour ^[4], while the Silver Institute has also highlighted rising speculative interest. ^[5]

These developments leave both metals exposed to pullbacks, but the long-term outlook remains unchanged. Their safe haven appeal can easily return given President Trump's confrontational modus operandi, trade disruptions and multiple geopolitical flashpoints. Fresh tariff threats continue, US-Iran tensions persist and a Ukraine peace deal remains elusive. Meanwhile, dollar headwinds are likely to endure as they are built on solid foundations.

Dedollarisation and debasement trends support gold

Despite the recent rebound, dollar weakness is likely to persist as it is rooted in global reserve diversification and fiat debasement pressures. Sino-Western tensions and disruptive trade policies are accelerating efforts by emerging economies to reduce reliance on the USDOLLAR, spearheaded by China.

Notably, state media resurfaced older comments by President Xi this week about turning the yuan into a reserve currency ^[6]. This shift, alongside global uncertainty, has driven a well documented surge in gold purchases by central banks. China boosted its reserves for fourteen consecutive months as of December ^[7], while gold has become the world's second largest reserve asset according to a recent ECB study ^[8].

At the same time, fears over ballooning global deficits are eroding confidence in major currencies and bonds. Gold is uniquely positioned to benefit as both a reserve asset and ultimate safe haven. The International Monetary Fund expects public debt to surpass post-war levels by 2029 ^[9]. Japan's elections and government stimulus highlight these risks, placing the country's public finances under scrutiny. President Trump's One Big Beautiful Bill is estimated by the Congressional Budget Office to add $3.4 trillion to the primary deficit by 2034 ^[10].

Industrial demand provides structural tailwinds for silver

Although silver benefits to a certain extent from dedollarisation trends, it has another, more powerful driver that supports outperformance against its shinier sibling. Structural strength stems from its role in industries vital to the global economy. Underscoring its importance, the United States Geological Survey added it to its critical minerals list last year ^[11], while the Silver Institute expects industrial demand to remain strong this year ^[12].

The metal is indispensable to the AI boom and data centre buildout. Key players in the semiconductor supply chain, including ASML and TSMC, pointed to continued AI demand in their latest earnings, while technology giants such as Meta continue to raise capital expenditure. Silver also plays a critical role in the clean energy transition, including photovoltaics and electric vehicles.

On top of this, it is integral to the defence sector amid expanding military budgets driven by ongoing geopolitical tensions. Highlighting this trend, NATO committed to raising investment levels ^[13], while President Trump pledged to increase the US defence budget to $1.5 trillion ^[14].

XAU/USD outlook

The recent sharp decline in prices, potential dollar resilience and speculative positioning could result in extended volatility and deeper corrections towards the EMA200, which would challenge the bullish outlook.

However, above the EMA200, XAU/USD remains well positioned to resume its rally and reach new all-time highs. Fundamentally, bullion demand is expected to persist as geopolitical and trade tensions are unlikely to fade, while the dollar's decline reflects a structural shift away from the currency.

XAG/USD outlook

Following the sharp correction in recent days, XAG/USD remains exposed to further declines and volatility driven by speculative interest and lower liquidity than bullion. The Trump administration's decision not to impose import duties on critical minerals has eased supply tightness concerns. Demand could weaken again amid global economic risks, while supply remains relatively stable.

Nonetheless, silver retains a compelling technical and fundamental outlook, with the bullish bias intact above the EMA200 and the path open to new record highs. The market may remain in deficit despite near-term challenges, while its role in AI, clean energy and defence underpins long-term demand.