“I will invest in gold and silver once the price falls,” said many investors who missed the massive spike in the precious metals.
Gold and Silver have both soared over 100% in just two years. In October 2023, gold traded at $2,000, and Silver was at $23, while today gold is around $4,120 and Silver trades around $49.
That time has probably come. Gold and silver prices hit a speed bump this week. Gold and silver witnessed their greatest intra-day loss in over a decade, with gold down more than 7% and silver down 11% from highs in the previous five days of trade.
The sell-off that the world saw last week was waiting to happen. Asset prices cannot keep rising linearly without dips, corrections, and crashes.
What is interesting is that some are calling it the endgame for the two metals, while others label it as a technical correction. Let’s attempt to understand it better.
Silver Market
Initially, the factors that led gold to rise also made silver prices shoot up. Metal prices have surged this year amid economic and policy uncertainty, primarily driven by President Trump’s tariffs and fears of rising inflation.
However, Silver, despite its huge industrial use, has always played the second fiddle to gold.
What we are currently witnessing in the silver market worldwide is the impact of supply constraints on prices.
News started pouring in that the silver squeeze is pushing prices higher. According to Greenland Investment Management’s Anant Jania statement to Bloomberg, silver’s price surged due to the disappearance of inventory in London’s global trading hub, leading to very tight liquidity.
Another factor played a role – the US government shutdown. The weekly report from the Commodity Futures Trading Commission, carrying insights into hedge funds’ and money managers’ positions in US gold and silver futures, were not released, resulting in commodity traders lacking a crucial tool to take informed decisions in the market.
So much was the demand for physical silver that prices in the spot market exceeded the price on the Futures market. That’s called backwardation in the market parlance.
Backwardation negatively impacted the Silver ETF market, causing investors to pay a nearly 6% or even higher premium for ETF units on certain days this week.
The supply constraints remain, if the industry reports have to be believed.
The silver market is small. The $30 billion silver market, with a small annual turnover, can significantly impact prices despite slight demand fluctuations.
For the fifth year in a row, demand for silver will exceed supply this year. The demand for Silver is expected to be 1.20 billion ounces in 2025, while total global silver supply is projected to remain at 1.05 billion ounces.
To put it succinctly, it looks like a breather for silver and the run-up may continue unless the reasons that led to its rise change.
Gold Market
Gold is a safe haven asset, in demand, when there are uncertainties and economic risks all around. In the absence of these risks, money will automatically shift to riskier assets such as equities.
Recent sell-off in gold could be on account of ‘profit-booking’ amidst the strengthening of the dollar index and easing trade tensions after Trump’s announcement on China.
Also, any easing of the business and economic environment, particularly around Trump’s trade talks, could dampen the shine off these precious metals.
If not, the US debt burden, weakness in dollar index, central bank’s love for gold, and the US Fed’s aggressive rate cut stance, may continue to support gold prices.
Caution Ahead
What specific reason will take the gold and silver price up or down is anybody’s guess.
Both gold and silver prices have run up a lot. And, they are now in almost every investor’s watchlist.
But do not ignore the sharp turnarounds. There could be equally sharp downturns, so expect corrections, consolidation and volatility in the months ahead. As experts put it, corrections define the next up move, where the market’s true strength is revealed.
What to do
Now that the prices have cooled down a bit, many would be tempted to jump in. Some may still wait for further fall.
Investors frequently make quick judgments based on trends, driven by FOMO. ‘Buy the Dip’ is a popular approach among traders with short- to medium-term horizons. But, as a retail investor, do not necessarily follow it unless you are an experienced investor.
There’s another possibility that may be seen in the precious metal market. Both gold and silver may fall a bit more and then prices remain range-bound for some weeks or months, in a consolidation phase. That’s the time when non-serious investors sell and look for other lucrative avenues, missing the next rally, if it comes.
Also, do not fall for predictions either. Gold rate today in India is Rs 1,22,200 and the Silver rate today is around Rs 1,48,730. Nobody knows what the gold and silver prices will be tomorrow, the next month, or a year from now. Most financial planners suggest a long-term strategy with systematic exposure, allocating 5-10% of one’s portfolio to these metals, if required.
