The truth behind the plunge in precious metals: Why is gold still considered promising?

The precious metals market at the end of the year has experienced a wave of shakeouts. On December 29, gold prices once fell over 4%, approaching $4,300 per ounce; silver was even more bleak, closing down 9% to $70.53 per ounce, while platinum and palladium also declined by over 14% and 15%, respectively. Such a large decline has caused many investors to harbor doubts.

What exactly caused this wave of decline?

On the surface, the collective drop in precious metals stems from multiple factors resonating together. Market profit-taking is one of them — after a long period of gains, investors are choosing to realize profits. More critically, CME raised margin requirements for gold, silver, and other metal futures after the market closed on December 29. This means traders need to put in more cash to maintain their existing positions, forcing speculators with limited funds to reduce or close their positions, further intensifying selling pressure.

Additionally, liquidity dries up at the end and beginning of the year, which cannot be ignored. As UBS analysts pointed out, the market tends to be extremely inactive at year-end, creating a breeding ground for significant volatility.

Why is the outlook for gold worth looking forward to?

Despite short-term pressure, many industry experts remain optimistic about the long-term prospects of gold. From a macro perspective, the trend of gold is supported on multiple levels.

UBS predicts that, under the backdrop of still-low real yields, uncertain global economic outlook, and unresolved domestic policy risks in the US, gold demand will maintain steady growth through 2026. More specifically, the firm expects gold prices to rise to $5,000 per ounce in the first three quarters of 2026. If geopolitical or political risks escalate, gold could even reach $5,400 per ounce.

In the short term, market focus is on the Federal Reserve meeting minutes released in the early hours of December 31. If the policy tone is more hawkish than expected, coupled with increased ETF outflows, gold indeed faces downside risks. However, over the course of the year, these factors are unlikely to alter its long-term upward trajectory.

Where are the opportunities for silver?

For silver, Bridgewater hedge fund’s chief commodities officer Alexander Campbell’s views are particularly insightful. He points out that short-term obstacles such as tax-related sell-offs and margin turmoil exist, and advises investors to wait and see, positioning themselves after these disturbances subside.

But in the long run, the fundamentals for silver remain solid. Campbell notes an interesting phenomenon: the spot trading price of silver in Dubai is $91 per ounce, in Shanghai $85, while COMEX futures are only $75. This price discrepancy reflects an undervaluation in the futures market. Considering the strong demand for silver from solar energy and data centers, silver prices still have considerable upward potential.

The current plunge is merely a routine market shakeout, and patient investors often find opportunities during such times. The true test of gold’s trend and silver’s future will gradually emerge next year.