Gold and silver are bouncing back after experiencing one of the sharpest corrections in precious metals in more than a decade.
While short-term volatility is expected to remain high as markets adjust to recent moves, analysts suggest the recent sell-off is likely a correction, not a fundamental reversal, unless macro conditions materially change, ING Group’s latest report claimed.
Renewed buying interest has been drawn to gold and silver, following a period of decline from record highs and high volatility.
This recovery occurred as the US dollar weakened and broader market conditions became more stable.
“While near-term volatility is likely to persist, we view the recent move primarily as a positioning-driven reset rather than a fundamental turning point,” Ewa Manthey, commodities strategist at ING Group, said in the report.
Historic sell-off
The recent sell-off in precious metals was unprecedented in both its velocity and scale.
On Friday, gold saw its most significant single-day decline since 2013, while silver experienced its largest daily drop on record.
This sharp drop in silver and gold continued into Monday, as investors liquidated excessive long positions.
The recent selloff follows a remarkable three-month rally for precious metals.
During this period, gold’s price soared from $4,000 per ounce (oz) to over $5,600/oz, and silver more than doubled, jumping from about $50/oz to nearly $120/oz.
This dramatic surge was primarily driven by massive speculative buying originating in China, involving everyone from retail investors to major equity funds reallocating capital into the commodity market.
These fresh capital inflows pushed prices to unsustainable extremes before the sudden reversal occurred last week.
Friday’s market reversal was triggered by President Trump’s plan to nominate Kevin Warsh as the next Fed chair.
Warsh is seen as the most hawkish candidate, leading to a sharp rise in the US dollar and widespread profit-taking by investors betting on a weaker dollar.
Prices rebounded sharply on Tuesday’s trading as market stress eased, with spot gold recovering over 6% and silver rising around 8%.
The recovery is ongoing on Wednesday as well, with both metals registering sharp gains.
This partial retracement suggests the earlier, momentum and leverage-driven sell-off was likely overdone, according to ING.
“From a medium-term perspective, the correction has helped to reset positioning and reduce excess froth,” Manthey said.
However, it also serves as a reminder that precious metals remain sensitive to shifts in liquidity, positioning and broader risk sentiment.
Volatile silver
Silver is frequently called “gold on steroids” because its price movements, in percentage terms, are typically much greater than gold’s.
This amplified volatility, seen both during market sell-offs and subsequent recoveries, stems from its smaller market capitalization and its sensitivity to both investment and industrial demand.
“While volatility is likely to remain elevated, the medium-term fundamentals for silver remain broadly unchanged,” Manthey added.
Electrification-driven industrial demand and tight physical balances sustain the market.
However, silver’s higher volatility makes it more susceptible to changes in sentiment and positioning than gold.
Manthey said:
However, for silver to build a more durable recovery, ETF outflows will need to stabilise.
ETF demand is a crucial price driver, and holdings have decreased for eight consecutive days.
Gold fundamentals strong
The recent correction in gold prices does not seem to signal a shift in the fundamental macro narrative.
The medium-term outlook remains positive, supported by persistent safe-haven demand, continued purchases by central banks, and the trajectory of real interest rates, the ING report showed.
Although immediate factors fueled the recent surge, the primary, multi-year driver of gold’s appreciation continues to be the steady purchasing by central banks worldwide.
This consistent demand from the “official sector” has served as a stabilising foundation in the gold market ever since this phase of accumulation began in 2022, ING said.
That period marked a significant shift, prompted by Russia’s invasion of Ukraine, which led these institutions to rethink their strategies for reserve security and diversification.
Despite a slight moderation in central bank purchases last year, these institutions continue to be substantial net buyers.
Given current price levels and the recent market correction, central banks are expected to increase their activity once more.
“Their demand tends to be strategic, long-term and largely insensitive to short‑term price swings, reinforcing gold’s structural support over the medium term,” Manthey said.
That said, near-term price action is likely to remain driven by macro data, policy expectations and dollar movements, rather than a smooth continuation of the rally.
What is next?
Market volatility is expected to remain high in the near term as a result of ongoing market positioning adjustments following last week’s movements, according to ING.
Unless there is a significant change in the broader economic situation, we anticipate the recent market decline will be a temporary correction rather than a fundamental, long-term shift.
The speed and longevity of any future recovery hinge upon developments concerning the US dollar, expectations around interest rates, and overall risk appetite.
“But, precious metals are more likely to climb at a steadier, less linear pace from here, rather than repeat the explosive rally seen over the past few months,” Manthey concluded.