Precious Metals Rally Raises Questions About Market Functioning

Gold’s advance continued on Thursday, surpassing $5,500 per ounce to establish a fresh record. Spot gold rose more than 3%, trading at $5,501.18 an ounce according to LSEG, while February gold futures climbed over 3% to $5,568.66 per ounce. Spot silver increased more than 2% to $119.30 per ounce, and U.S. March silver futures gained nearly 5% to $118.73 per ounce.

Silver breached $117 an ounce for the first time on Thursday after posting a gain exceeding 145% in 2025, LSEG data show, and the metal is up roughly 65% year to date. The rally has lifted prices across the precious‑metals complex, extending into platinum, palladium and some base metals. Ed Yardeni, president of Yardeni Research, said his firm had anticipated a sharp rise in gold and noted the move has broadened to include other precious and industrial metals.

Market participants point to investor demand for protection amid geopolitical tensions, rising government debt and uncertainty about interest‑rate and currency trajectories as key drivers. Continued central‑bank purchases have supported gold, and expectations for eventual monetary easing have increased the appeal of non‑yielding assets relative to Treasurys.

Silver’s surge has been amplified by its industrial applications, with demand from solar, electronics and electrification trends adding pressure to an already constrained supply backdrop. Nicky Shiels of MKS PAMP described the recent volatility as “unheard‑of,” arguing that liquidity flows rather than physical supply and demand are increasingly dictating price moves and producing repeated dislocations from fundamentals. She added that precious metals have experienced a tactical melt‑up over the past two months and appear overbought.

Maximilian Tomei, CEO and co‑portfolio manager at Galena Asset Management, similarly suggested the price action is driven more by a weakening denominator than by a sudden surge in metal demand, noting that gold behaves in some respects like a currency and will rise if the unit it is measured against weakens. The dollar index has fallen nearly 11% over the past 12 months. Tomei cautioned that while some fundamental demand exists, it does not fully account for the scale of recent gains, and he described silver’s behaviour as exaggerated and symptomatic of market disconnects.

Tomei also pointed to excess liquidity in global markets as a potential contributor: rising asset prices enable greater borrowing against portfolios, creating additional leverage that can redirect capital into metals when equity valuations become stretched. In his view, gold and silver have increasingly served as destinations for that liquidity rather than reflecting a dramatic change in underlying fundamentals.

Some analysts have observed that government bonds have lost part of their traditional safe‑haven role amid growing sovereign debt burdens, a shift that has coincided with bouts of bond market volatility. The consequence in smaller precious‑metals markets is that relatively modest inflows can produce outsized price moves, creating a sense that the rally is detached from conventional supply‑and‑demand dynamics. Guy Wolf, global head of market analytics at Marex, warned that markets such as silver and platinum are small relative to gold or major equity benchmarks, so speculative capital can distort prices sharply; production constraints mean physical supply cannot quickly expand to meet surging demand, a dynamic that could reverse rapidly if speculative investors take profits and liquidity recedes.

Not all observers, however, are prepared to declare price discovery broken. Gautam Varma, managing director at V2 Ventures, stopped short of that characterization while acknowledging the growing role of speculative capital in the recent surge. He noted that much of the new capital may be motivated by factors other than traditional fundamental demand and supply.