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Thought of the day

Gold prices stabilized on Wednesday after experiencing their steepest intraday decline in over a dozen years on Tuesday, falling as much as 6.6%. This pullback in precious metals followed a series of record highs this year, as investors took profit amid growing concerns that the rallies have gone too far.

Before the sell-off, gold had climbed over 65% this year, while silver had surged nearly 90%. But with gold’s relative strength index (RSI) signaling overbought conditions, and the absence of positioning data from the Commodity Futures Trading Commission due to the US government shutdown, investors pared back their positions.

We have highlighted the potential for volatility given the scale and speed of the rally, but we believe precious metals should remain supported by a combination of macroeconomic, fundamental, and momentum-driven factors.

Debt concerns and interest rate cuts should continue to provide a supportive backdrop. Elevated global debt levels, large fiscal deficits, and the risk of further US dollar weakness on the back of Federal Reserve rate cuts have driven the rally in precious metals this year. Historically, a sustained reversal in these rallies has often been triggered by a switch in Fed policy. However, the US central bank remains on track to cut rates further, and US real interest rates could fall below zero given still-sticky inflation. We believe this will further undermine the appeal of the US dollar amid slowing growth, encouraging additional investment flows into precious metals.

Demand for precious metals is likely to strengthen further. Global gold exchange-traded funds (ETFs) attracted USD 17bn in inflows last month—the largest monthly addition on record, according to the World Gold Council. This brought total inflows over the three months to September to USD 26bn, marking the strongest quarter ever. Combined with sustained central bank purchases, we expect global gold demand this year to reach around 4,850 metric tons, the highest since 2011. Meanwhile, silver continues to benefit from industrial application demand and remains relatively inexpensive compared to gold. We expect silver ETF holdings will return to previous highs of 1,021 million ounces, supported by a more constructive macro outlook for 2026.

Ongoing political uncertainty should remain a tailwind. The “fear of missing out” appears to be influencing both gold and silver markets, given their substantial rallies this year. The stabilization in prices on Wednesday suggests that some investors may be stepping in to buy the dip. With the US government still in shutdown and economic and geopolitical uncertainties persisting, we expect continued safe-haven demand to support precious metals.

So, we continue to view gold as an effective portfolio diversifier, with further gains toward our upside case of USD 4,700/oz still possible should adverse macro and political developments emerge. For investors with an affinity for gold, we recommend using setbacks to add holdings if they are below our optimal mid-single-digit allocation in a diversified portfolio. We also see value in exposure to silver, which we expect to rebound to USD 55/oz by June 2026. Investors may consider selling the metal’s downside risk.