Gold and Silver’s Volatile Dance: What’s Next for Precious Metals?
The extraordinary gold price rally to over $5,600 per fine ounce was driven by both robust, strategically oriented demand and short-term, speculative market positioning. The subsequent sharp reversal demonstrated how overheated the market had become. The correction was triggered by the surprising nomination of Kevin Warsh as the future Fed Chairman. Investors doubt that the designated head of the US Federal Reserve will lower interest rates at the pace and extent desired by US President Donald Trump.
Central Banks as Pillars of Support
The beginning of 2026 has also impressively shown that geopolitical developments continue to drive the world towards bloc formation. This is a structural trend from which gold benefits as the ultimate safe haven. This geopolitical fragmentation is increasingly reflected in the currency reserves of central banks.
In a recent survey by the World Gold Council, numerous central banks signaled their intention to continue expanding their gold holdings despite the strong price increase. The goal is to become more independent of the increasingly uncertain dollar. Central banks are thus acting as a long-term, reliable pillar of gold demand.
Silver’s Surge: Industrial Demand and Speculation
The exceptional rally of the silver price at the conclude of 2025 and the beginning of 2026 had several causes: extremely high demand coupled with a structural supply shortage. For years, production has been unable to meet demand, which has been covered from stockpiles. But the vaults are becoming increasingly empty.
unlike gold, silver is also an industrial metal. We see urgently needed for key industries such as solar energy, electromobility, aerospace, data centers, and AI technology. As early as 2025, a structural supply deficit of at least 400 million fine ounces existed, leading to sustained price pressure.
Because the silver market is much smaller than the gold market, it is also significantly more volatile. Even medium-sized capital flows can trigger large price movements. The 40 percent increase in December 2025 impressively demonstrated this.
A particularly strong impetus came from Elon Musk, who shortly before the New Year publicly pointed out the high silver requirements of his space and technology projects. This pushed the price up another 5.7 percent in the short term, temporarily exceeding the psychologically essential mark of $80 per fine ounce.
Speculative Overextension and the Fomo Rally
The first weeks of 2026 were characterized by a massive influx of speculative investors who wanted to jump on the ever-accelerating bandwagon. The Anglo-Saxons call this Fear of Missing Out (Fomo). The price rose by 75 percent within a month – a clear signal of hype dynamics.
The subsequent price crash was based on several interconnected causes. After the rally to over $80, many professional and long-term investors used the high prices to realize profits, triggering the first wave of sales. New market participants had entered the market solely because of the hype. When the first declines set in, the mood immediately turned to uncertainty and panic, exacerbating the crash. The price fell by 49 percent within just eight days. At the same time, a technical counter-movement was overdue after the overheating.
Looking Ahead: What to Expect
Given the geopolitical bloc formation, the ongoing deglobalization, and the fluctuating confidence in the Fed and the US dollar, it seems likely that gold will sustainably exceed the $5,000 per fine ounce mark in the course of the year. Prices of $5,400 appear to be within reach. Still, short-term market volatility is not to be ruled out due to geopolitical impulses.
Unlike gold, the air may have gone out of its smaller brother, silver, for the time being. Silver is hardly suitable for central banks or other large investors as an alternative. If they invest the same amount in silver and gold, they would need a storage volume approximately 120 times larger for silver. The associated costs clearly speak against silver as a store of value. Industry is increasingly developing techniques to reduce the demand for silver, particularly among photovoltaic manufacturers.
FAQ
Q: What caused the recent gold and silver price crashes?
A: The crashes were triggered by the nomination of Kevin Warsh as Fed Chairman, leading to investor concerns about the pace of interest rate cuts, combined with speculative bubbles and profit-taking.
Q: Are central banks still buying gold?
A: Yes, central banks continue to increase their gold reserves as a hedge against the dollar’s perceived instability and geopolitical risks.
Q: Is silver likely to rebound as strongly as gold?
A: Analysts suggest silver may experience more limited gains due to its smaller market size, industrial applications, and the development of technologies to reduce silver consumption.
Q: What is the role of geopolitical factors in precious metal prices?
A: Geopolitical instability and bloc formation drive demand for gold as a safe haven asset, supporting its price.
About the Author
Reinhard Pfingsten is a graduate in mathematical economics and has been Chief Investment Officer at Deutsche Apotheker- und Ärztebank since September 2023.
