Index rebalancing triggers selling pressure, silver falls for the second consecutive day, and gold stabilizes.

As the annual rebalancing of commodity indices approaches, silver plummeted for the second consecutive trading day, with the market expecting passive sales of futures contracts worth billions of dollars in the coming days. In contrast, gold trended towards stability, recovering some of its intraday losses. Silver fell by 5.5% at one point during the trading session, following a nearly 4% plunge the previous trading day. With index weight adjustments, passive funds tracking the index began selling precious metal futures from Thursday onwards to match the new allocation requirements. While this process is typically routine, the impact of this year's rebalancing on the market appears especially significant after last year's substantial gains in gold and silver. Silver-related exchange-traded funds (ETFs) recorded their largest single-day outflow of funds since October last Wednesday, accompanied by a noticeable increase in market volatility. Compared to gold, silver is more sensitive to index rebalancing. Citigroup estimates that approximately $6.8 billion in silver futures may be sold to meet the index adjustment requirements, equivalent to about 12% of outstanding silver futures contracts on the New York Commodity Exchange. Citigroup also anticipates that the outflow of funds in gold futures will be roughly equivalent to silver, based on the size of funds tracking commodity indices such as the S&P Goldman Sachs Commodity Index. Due to the significant increase in the weight of precious metals in commodity indices last year, rebalancing is necessary. The roll-over period for commodity indices typically lasts from the sixth to the tenth working day of each year, with corresponding rebalancing trades usually occurring from the fifth to the ninth working day with a lag of about one day. In a report dated December 12 last year, JPMorgan Chase noted that both gold and silver underwent similar index sales last year without causing significant drag on the market. However, the bank also stated that the scale of sales needed to be absorbed by silver this year is more pronounced. Citigroup strategist Kenny Hu remarked, "Having been in this process for many years, I have never seen such a large flow of funds." Despite short-term pressure, analysts generally remain optimistic about the medium- to long-term prospects for gold. Gold recorded its best annual performance since 1979 last year, supported by continued central bank buying, inflows into gold ETFs, and a weakening dollar. James Steel, Chief Precious Metals Analyst at HSBC Holdings, stated that gold's rally has been driven by the combination of safe-haven and risk-aversion demand, with further enlargement of this trend due to the weakening dollar and policy uncertainty. He predicts that amid rising geopolitical risks and widening fiscal deficits, gold could rise to $5000 per ounce by the first half of 2026. Data released by the World Gold Council on January 6 showed that central banks globally collectively net bought 45 tons of gold in November last year. Meanwhile, the People's Bank of China has been increasing its gold holdings for 14 consecutive months, with official demand continuing to be a key force supporting gold prices. The market is currently focused on the US December jobs report to be released on Friday. If the data shows weakness, it could strengthen market bets on further rate cuts by the Federal Reserve, providing new upward momentum for interest-free precious metals. Compared to gold, silver had a stronger rally last year, with an annual increase of nearly 150%. In October, the market experienced a historic "short squeeze," and since then, silver has continued to benefit from tight supplies in the London spot market and tariff concerns limiting metal flow from the high stocks in the US to overseas. David Wilson, Head of Commodity Strategy at BNP Paribas, stated that index rebalancing may "suppress silver's upside potential" in the short term, but in the longer term, silver still has stronger upward momentum.