Gold prices are recovering from the recent correction, fueled by a significant rebound in demand from China, particularly after the extended Labour Day holiday. As noted in last week’s update, the rally in gold this year, which has seen the yellow metal climb nearly 28%, continues to be driven by both Chinese investor and central bank demand. China, a dominant force in global gold demand, has contributed heavily through local gold-backed exchange-traded funds (ETFs), with inflows surpassing the totals for 2024 already. This surge highlights sustained domestic interest in gold, largely retail-driven, amid economic uncertainties and concerns about the long-term stability of the US-China relationship.
After the recent correction bottomed out at USD 3,200, just ahead of critical support in the USD 3,160–3,170 range, gold prices rebounded to USD 3,387 during the Asian trading session. This recovery marks the resumption of a week-long trend in which COMEX gold futures recorded significant gains outside of US “pit” trading hours, while struggling during regular US trading hours (08:20 to 13:30 EST). The trend also reflects a broader shift in speculative positions, with hedge funds and commodity trading advisors (CTAs) having been net sellers of gold for six consecutive weeks. As of May 29, their net futures positions fell to a 14-month low of just 11.6 million ounces, down 55% from September when gold traded at USD 2,650.
Despite leveraged funds exiting the market—largely due to reduced risk appetite after volatile months across global markets—other investors, particularly in Asia, have stepped in to support gold prices. On the global stage, known holdings in gold-backed ETFs (mainly registered in the West) have decreased by 1 million ounces after a strong rise earlier this year. In contrast, China’s gold-backed ETFs have seen inflows exceed 2024 totals, signaling continued robust demand.
With gold having already reached the 2025 price target of USD 3,500, market observers are adopting a wait-and-see approach. However, with several key structural factors, such as central bank buying and strong Asian demand, unlikely to dissipate anytime soon, the risk remains tilted toward further price increases.
Silver Struggles to Keep Pace with Gold
Silver, in contrast, has struggled to match gold’s renewed rally, with the gold-to-silver ratio remaining above 100. While gold benefits from strong central bank demand and robust Asian investment, silver has faced challenges due to its semi-industrial nature, making it a more pro-cyclical commodity. The slowdown in China’s solar production has particularly impacted silver, as the sector experiences oversupply.
Despite this, historical trends suggest a strong correlation between gold and silver. Silver often mirrors gold’s price movements, albeit with more volatility. To regain lost ground, silver will need an improved technical outlook. Recent price action shows that silver’s latest correction below USD 32 found support at the 0.382 Fibonacci retracement level, at USD 31.63. Resistance is noted at USD 33.35, followed by a triple top at USD 33.68.
Platinum Faces Tightening Range, Awaiting Breakout
Platinum, over the last decade, has seen its value relative to gold fall dramatically, from a 1-to-1 ratio to the current 3.5-to-1 ratio, near the record 3.6-to-1 ratio reached last month. The metal has largely traded sideways over the past ten years, averaging around USD 955 per ounce, just below its current price. Meanwhile, gold has been trading approximately 50% above its long-term average.
The narrowing trading range of platinum suggests that a breakout may be imminent, although technical traders are awaiting clear momentum signals. Currently, platinum faces resistance at USD 1,010, with a key downtrend from 2008 capping prices at around USD 1,025. In the meantime, managed money accounts in the COMEX futures market maintain a neutral stance on platinum, reflecting the lack of clear direction in the market.
Key Drivers Behind Gold’s Ongoing Rally
Several key factors continue to underpin gold’s rally, which could eventually also support silver and platinum, particularly as inflationary pressures and geopolitical risks persist:
US Fed Funds Rate Expectations: The market is pricing in a potential 75–100 basis point rate cut by the Federal Reserve before year-end. Lower interest rates reduce the opportunity cost of holding gold, making it more attractive as a non-yielding asset.
Investment Demand for “Paper” Gold: The demand for gold-backed financial products, such as futures and ETFs, is influenced by technical market factors, price momentum, and macroeconomic conditions. Rising concerns over recession and low funding costs have boosted demand for gold-based investment products.
Rising US Inflation Expectations: Falling real yields in the US Treasury market, combined with rising inflation expectations, have made gold increasingly appealing as a hedge against inflation. As the real return on fixed-income assets diminishes, gold’s relative attractiveness increases.
Geopolitical Risks: Global instability, such as conflicts, wars, and diplomatic tensions, has pushed investors toward safe-haven assets like gold. The growing geopolitical tensions, especially between the US and China, have added further support to gold prices.
Central Bank Diversification: A growing number of central banks are diversifying their foreign reserves away from the US dollar, opting for gold as a neutral reserve asset. Countries like China, India, Turkey, and Russia have been leading this trend, with central bank gold purchases expected to continue through 2025 and beyond.
Strong Asian Demand: In particular, Chinese investors continue to be a key source of demand, driven by concerns over domestic economic instability, weak real estate and stock markets, and as a hedge against potential Renminbi devaluation amid ongoing trade tensions.
With these structural drivers in place, gold’s outlook remains positive, while silver and platinum may eventually benefit as well, depending on shifts in market sentiment and technical conditions.
Related topics:
- India Surpasses China in Gold Purchases, Buying 51% More in Three Months
- Qilu Bank Enhances Support for Small Businesses with Innovative Financial Tools
- Bitcoin Poised for a Surge Amid Gold’s Delivery Delays, Expert Claims
