Precious metals rally defying dollar strength with surging investment demand
AdamSummary:
Gold and silver surged despite a stronger dollar, driven by safe-haven demand, rising ETF inflows, retail buying, and continued central-bank purchases, with silver even moving into backwardation on tight physical supply.
Gold and silver posted substantial gains this week, defying the traditional inverse relationship with the U.S. dollar as investors increasingly turn to precious metals amid geopolitical uncertainty and shifting market dynamics.
According to data released by the World Gold Council, investor appetite for gold continues to strengthen, with total demand for the precious metal rising 3% year-over-year to reach 1,313 metric tons. The organization attributed this growth primarily to robust exchange-traded fund inflows and heightened retail investment in bars and coins. The Council noted that fear-of-missing-out sentiment has taken hold among retail investors, amplified by ongoing geopolitical concerns. Notably, gold's rapid price appreciation—which has historically dampened demand during previous rallies—appears to have had little deterrent effect on current buying activity.
The World Gold Council maintains an optimistic outlook for the remainder of the year, projecting central bank purchases to remain substantial at between 750 and 900 metric tons. While this estimate represents a decline from the previous year's levels, it aligns with purchasing patterns observed year-to-date, underscoring continued institutional demand for gold reserves.
Recent developments in U.S.-China trade relations have contributed to dollar strength, with the Trump administration announcing a one-year agreement with Beijing covering rare earth elements and critical minerals. As part of the deal, tariffs on fentanyl-related imports were reduced by half to 10%, while China committed to curtailing fentanyl production and resuming purchases of American agricultural products, including soybeans.
These trade developments, combined with what markets interpreted as hawkish commentary from Federal Reserve Chairman Jerome Powell, propelled the U.S. Dollar Index to consecutive daily gains of 0.41% and 0.38% respectively. The greenback reached an intraday high of 99.72—a level last observed on August 1st—marking its strongest performance in months.
Despite the appreciating dollar, which typically exerts downward pressure on commodity prices, both gold and silver demonstrated remarkable resilience. Silver futures for December delivery on the Comex exchange advanced $1.50, or 3.17%, to trade at $48.75 per ounce. Spot silver gained $1.34, or 2.84%, to $48.89, with the premium of spot prices over futures indicating a return to backwardation—a market structure that signals robust demand for physical metal is outpacing available supply.
Gold followed silver's lead with an even more pronounced rally, posting nearly $100 in single-day gains. The most actively traded December Comex gold futures contract climbed $98.30, or 2.51%, to settle at $4,039.80 per troy ounce. The advance restored both futures and spot gold above the psychologically significant threshold of $4,000 per ounce, reinforcing bullish sentiment in the precious metals complex.
The concurrent strength in precious metals and the dollar represents an unusual market dynamic, suggesting that safe-haven demand and investment flows are currently overriding traditional currency-driven price relationships.
Source : kitco
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