International precious metal prices have fluctuated dramatically this year. On January 29, COMEX gold futures prices rose to $5,626.8 per ounce, and COMEX silver futures prices rose to $121.785 per ounce, both setting record highs. However, the market subsequently experienced a sudden and sharp sell-off. On January 30, COMEX gold futures prices fell by more than 12% intraday, marking the largest single-day drop since 1980; COMEX silver futures prices fell by more than 35% intraday, also marking the largest single-day drop in history. Entering February, precious metal prices maintained a high volatility trend. Market participants believe that this round of precious metal price adjustments is more of a deleveraging process following excessive short-term trading congestion, rather than a systemic reversal of fundamental trends. For market participants, in a market environment where high volatility is the norm, grasping the rhythm and structural opportunities will be more important than judging unilateral trends.
In 2025, the global precious metals market continued its upward trend amid macroeconomic uncertainties and a favorable liquidity environment, with gold and silver prices hitting record highs. In the first half of the year, factors such as the marginal contraction of the US dollar's credit, recurring geopolitical frictions, and rising expectations of a shift in Federal Reserve policy drove a continuous inflow of safe-haven and allocation-oriented funds into the precious metals market. In the second half of the year, as expectations of a "soft landing" for the global economy gradually took shape, silver prices rebounded due to the combined effects of its industrial and financial attributes, the gold-silver ratio fell from its high range, and precious metal prices maintained an overall high-slope upward trend. At the end of 2025 and the beginning of 2026, the precious metals market experienced significantly increased volatility. Before January 29th, the Asian session was particularly strong, with high physical demand and premium levels in the Chinese and Indian markets driving a rapid narrowing of the gold price gap between domestic and international markets. During the European and American sessions, ETF funds steadily flowed in amidst fluctuations in long-term US Treasury yields and safe-haven demand, providing sustained support for gold prices.
Starting January 30th, the market experienced a significant and rapid correction. From a pattern and operational mechanism perspective, this round of sharp declines in precious metal prices is highly similar to the correction on October 21st, 2025, but on a larger scale. The rapid rise in short-term implied volatility triggered passive deleveraging by quantitative and highly leveraged funds. Simultaneously, high-frequency market makers tightened liquidity, marginally amplifying the scale of the downward impact. From the perspective of participant structure, this correction is more akin to a partial clearing of highly leveraged funds after a medium- to long-term unilateral rise, rather than a substantial reversal of fundamental logic. The previous continuous high-slope rise, the widespread influx of non-commodity funds, and the rapid accumulation of ETF and options exposure made this phase of deleveraging highly inevitable. Regionally, after prices stabilize, whether the Asian market can regain physical demand, especially the performance of retail demand in China and India, will be a key factor determining the pace of basis repair and the sustainability of the rebound. Overall, assuming no trend-based outflow from ETF holdings, this round of correction can be understood as a structural rebalancing in a high-volatility environment.
Gold's dual-engine drive
The core characteristic of the gold market lies in its "not being consumed, but only held" nature. Almost all historically mined gold remains in stock, with annual new supply accounting for only about 1% of the total stock, and it is highly insensitive to price. This characteristic determines that the commodity balance sheet framework centered on production and consumption is not applicable to gold. The formation mechanism of gold prices essentially revolves around the redistribution of existing stock: prices are cleared by changing the holding intentions of different holders, rather than by stimulating supply or suppressing end-user demand. According to the balance sheet published by the World Gold Council, in the past two years, there has been no significant gap between gold supply and demand, but the price center has continued to rise, reflecting that marginal pricing power mainly comes from structural changes on the demand side. The author believes that the core logic of current gold pricing can be summarized as a dual-driven force comprised of global central bank gold purchase demand and ETF investment demand.
From the perspective of global central bank gold purchases, this round of global central bank gold buying began with the freezing of the Russian central bank's overseas assets, reflecting emerging markets' reassessment of the dollar's credibility. Although the proportion of gold reserves in foreign exchange reserves held by emerging market central banks has increased in the past two years, it remains relatively low compared to developed economies. Looking ahead, driven by considerations of reserve diversification, hedging geopolitical risks, and asset security, global central bank gold purchases are likely to be sustained. The relatively low price sensitivity of global central bank demand makes it the most stable long-term marginal buyer in the gold market.
The role of ETF investment demand in gold pricing is becoming increasingly prominent. Historical experience shows that net inflows into European and American gold ETFs are highly correlated with interest rate cut cycles. As policy interest rates decline and holding costs decrease, ETF allocation demand exhibits a synchronous and consistent growth pattern. Since 2025, North American and European ETFs have become the marginal dominant sources of funds, while the Asian market has shown characteristics of "low base and high growth rate," especially the Indian market, where ETF size has achieved a leapfrog expansion in a short period. The author believes that against the backdrop of the global interest rate cut cycle not yet ending, rising risks to the independence of the Federal Reserve, and persistent geopolitical uncertainties, the demand for gold allocation from ETF funds will remain sustainable.
From a relative valuation perspective, despite gold prices repeatedly hitting new highs, its valuation relative to global risk assets has not entered an extreme range. The ratio of gold to the MSCI World Index remains at a relatively low historical level, indicating that gold's weight in global asset allocation is not significantly excessive. In a macroeconomic environment characterized by sticky inflation, fiscal expansion, and geopolitical risks, gold still possesses strategic allocation value.
Silver's highly elastic pricing
Unlike gold, silver possesses both financial and industrial attributes. Its smaller market size and more limited deliverable inventory make its price highly sensitive to capital flows and spot market fluctuations. The World Silver Institute stated that although silver has been nominally destocking for several years, the marginal increase in industrial demand has slowed significantly since 2025. In particular, the photovoltaic industry, driven by technological advancements and material substitution, has seen a continuous decline in unit silver consumption, weakening the long-term driving force of industrial demand on silver prices. In the first half of 2025, the core logic behind silver price increases is the same as for gold, primarily driven by investment buying, including increased ETF holdings and speculative long positions. In the second half of 2025, the contradiction of insufficient available silver inventory began to come into investors' view. Historically, concentrated inflows of investment funds have often significantly amplified silver price volatility, making it a high-beta commodity. With increased expectations of Fed rate cuts and the return of ETF funds, silver experienced accelerated price increases in the second half of 2025, with the gold-silver ratio falling from extreme highs to the lower end of its historical fluctuation range.
The temporary tightness in the silver spot market is a key trigger for the non-linear upward movement of prices. In 2025, anticipated US tariffs prompted a large influx of physical silver into COMEX, while deliverable inventories in London, the global pricing center, decreased. Simultaneously, silver ETFs continued to absorb physical inventories, causing the London Bullion Market Association (LBMA) share of tradable inventory to fall to a historical low, leading to a surge in leasing rates and spot premiums. Although some COMEX inventory subsequently flowed back to London, easing short-term liquidity pressures, the overall inventory structure remained tight.
In the Chinese market, the negative price difference between domestic and international markets widened significantly in the second half of 2025. The export window for silver under general trade temporarily opened, with monthly export volumes rising rapidly, further depleting domestic inventories and exacerbating the global inventory fragmentation. Looking at delivery behavior, after the rapid price decline, both COMEX expected delivery declarations and domestic spot demand provided strong support, indicating that physical demand did not disappear due to the price drop but was confirmed at an even lower price range.
The perspective and logic of the gold-silver ratio
The gold-silver ratio is an important indicator measuring the relative prices of gold and silver. When this ratio rises, it means that silver is underperforming relative to gold; conversely, it means that silver is outperforming gold. The gold-silver ratio not only reflects the differences in the supply and demand fundamentals of the two, but also comprehensively reflects macroeconomic risk appetite, capital allocation tendencies, and market cycle characteristics. It has historically been an important indicator widely followed by precious metal investors.
Since 2025, the gold-silver ratio has experienced significant fluctuations. In the first half of 2025, the bull market in precious metals was driven by a confluence of macroeconomic risk aversion, policy uncertainty, and loose liquidity. Both gold and silver prices rose sharply, but the gold market, with its greater depth and stronger global central bank reserve attributes, led to a higher price in gold driven by extreme risk aversion. During this period, the gold-silver ratio rose above 100, approaching its historical peak. In the second half of 2025, silver prices began to catch up. Especially from the end of 2025 to the beginning of 2026, silver experienced a significant and steep upward trend driven by three factors: First, from a funding perspective, silver, as a high-beta asset, tends to experience greater volatility and price increases when funds chase rising prices. Second, tight inventory and spot supply. London deliverable inventory remained low, ETFs had high occupancy rates of physical inventory, and leasing rates soared, amplifying silver's response to capital inflows. Third, a supply-demand mismatch. Tight physical supply, coupled with export arbitrage and constraints on spot liquidity, has led to extremely strong silver prices in the short term.
In retrospect, the gold-silver ratio exhibits a significant tendency to revert to its historical mean. In most historical cycles, after approaching or exceeding the upper limit of statistical arbitrage (e.g., 80), the gold-silver ratio typically falls back to the 40-60 range in the medium to long term. This is a typical pattern of silver's catch-up rally driven by both industrial demand and financial safe-haven demand. Therefore, when the gold-silver ratio exceeds 80, silver often outperforms gold, with cumulative gains significantly exceeding those of gold across multiple major cycles. On one hand, the correction in the gold-silver ratio is usually accompanied by a recovery in industrial demand due to macroeconomic recovery, and silver's industrial demand is more sensitive to manufacturing expansion, exhibiting greater upward elasticity than gold. On the other hand, this phase often involves a shift in asset allocation from pure safe-haven assets to a broader diversification across commodities and risk assets, increasing the proportion of silver in portfolios.
In the fourth quarter of 2025 and January 2026, the gold-silver ratio continued to contract, reflecting a stronger narrative for silver in the short term. From a supply and demand perspective, silver supply has been consistently in short supply, and physical inventories have shrunk, making its price more sensitive to capital inflows. This characteristic is further amplified under conditions of loose liquidity and risk aversion. Speculative participation further exacerbated short-term silver price volatility, leading to a more significant compression of the gold-silver ratio. Furthermore, historically, while the rapid compression of the gold-silver ratio reflects silver's short-term strength, it also reflects extremely high capital crowding and a high risk of price rebalancing. Considering historical patterns and the medium-term prospects of silver in the photovoltaic industry and the elasticity of industrial demand, we believe that the gold-silver ratio is likely to continue to fluctuate around its historical center (40-60 range) in the medium term. If gold prices remain high, and silver continues its upward trend supported by tight spot supply and industrial demand, the convergence trend of the ratio may continue.
In summary, this round of precious metal price adjustments is more of a deleveraging process following excessive short-term trading congestion, rather than a systemic reversal of fundamental trends. Gold's medium-term allocation logic remains solid, driven by both global central bank gold purchases and ETF funds. Silver, constrained by inventory and capital flows, maintains its high elasticity and volatility. Looking ahead to 2026, global fiscal expansion and interest rate cuts will continue to support precious metal prices, as the dollar's credibility and geopolitical risk premiums have not yet subsided. Assuming no significant decline in ETF holdings and that price drops effectively stimulate spot demand, the probability of capital inflows after the precious metal price correction remains high. However, the impact of exchange risk control measures, policy disturbances, and sentiment fluctuations on short-term price movements should be closely monitored.
From an asset allocation perspective, gold remains suitable for strategic allocation as a core defensive asset, while silver is more suitable for high-elasticity allocation during periods of capital inflow. At the same time, close attention should be paid to changes in ETF funds, available inventory levels, and the gold-silver ratio. In a market environment characterized by high volatility, grasping the rhythm and structural opportunities will be more important than judging unilateral trends.
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