Gold’s orderly rally meets silver’s chaos as the dollar comes under pressure

The US dollar weakens as debasement fears intensify

A key accelerant behind the renewed demand for hard assets has been the US dollar, which has come under increasing pressure in recent weeks. Short-term concerns about a potential US government shutdown have resurfaced following disputes around funding for the Department of Homeland Security, adding to an already fragile backdrop for the currency. At the same time, a broader “sell America” narrative has begun to take hold, driven by relative growth concerns, widening fiscal deficits and a reassessment of capital flows into US assets.

Dollar weakness accelerated on Tuesday, with the currency hitting a four-year low after comments from President Trump suggested his administration was comfortable with a weaker dollar. These remarks coincided with growing speculation around possible US–Japan currency coordination, as authorities in both countries monitor yen strength and its implications for trade and financial stability.

Adding to the narrative, BlackRock’s Rick Rieder – a vocal advocate of aggressive interest-rate cuts – is increasingly being viewed as a leading candidate for the next Federal Reserve chair. The prospect of a more overtly dovish policy stance, combined with political tolerance for currency weakness, has further reinforced the perception that monetary debasement remains an accepted policy tool.

Taken together, these developments continue to add fuel to the debasement trade, underpinning demand for tangible stores of value such as gold and, by extension, silver.

Fears acknowledged, but some not yet realised

Importantly, many of the risks driving demand for gold have not yet fully materialised. US fiscal debt continues to rise, but market stress has so far been expressed mainly through a steeper yield curve rather than disorderly moves in rates or credit. The dollar has weakened, but not collapsed, while geopolitical tensions have yet to escalate into disruptions severe enough to derail global growth.

At the same time, central-bank demand – exceptionally strong between 2022 and 2024 – slowed last year, with net purchases drifting closer to pre-Covid levels. This does not undermine the structural case for gold, but it does mean that private and institutional inflows now play a larger marginal role in sustaining prices.

Against this backdrop, the surge in demand for tangible hard assets may begin to cool. For a non-yielding asset such as gold, continued inflows are required to justify ever-higher prices. Momentum could still carry prices towards USD 6,000 if macro or political risks intensify, but beyond that level the risk of consolidation rises, rather than an imminent major correction.

Alongside central banks, Tether Holdings SA has emerged as a significant source of demand, becoming the largest known holder of gold outside official institutions, with reported holdings of around 140 tonnes. Ongoing weekly purchases add an additional, non-traditional pillar of support to the market, reinforcing the breadth of demand underpinning gold prices.

Japan as a potential liquidity swing factor

One underappreciated variable is Japan. In recent weeks, markets have been forced to reassess Japan’s fiscal trajectory ahead of the 8 February election, and what rising Japanese government bond yields and a potentially stronger yen could mean for global capital flows. For two decades, Japan has been a source of both cheap funding and financial stability, supporting global liquidity across asset classes.

A reversal of those flows would matter. A stronger yen and higher domestic yields could encourage capital to return to Japan, effectively draining part of the global liquidity pool that has supported overseas investments into stocks, bonds and property. While this is not yet a base-case scenario, it is a risk worth monitoring closely, not least because in a worst-case scenario it could weigh on equities while pushing bond yields higher, potentially reinforcing demand for hard assets from a haven perspective. 

Gold remains orderly; silver does not

While gold’s ascent has so far been relatively orderly, with little evidence of classic bubble behaviour, the same cannot be said for silver. Silver increasingly show signs of having moved into bubble territory, with retail participation, speculative positioning and fear of missing out acting as the primary drivers of a rally that has pushed prices to historically expensive levels, both relative to gold and to platinum.

Momentum, rather than fundamentals, is currently doing most of the heavy lifting. In addition, short covering from industrial producers has added fuel to the rally, as rising prices have triggered margin calls on futures hedges, making it increasingly painful to maintain protection against future production. This dynamic may persist in the short term, but it is inherently unstable.

Under normal circumstances, around 60% of silver demand comes from industrial users, and this demand is price sensitive. At current levels, the risk of demand destruction is rising, particularly in the solar sector where substitution toward copper becomes increasingly attractive. In this respect, the old saying that “the best cure for a high price is a high price” still applies to silver. Gold, by contrast, is primarily a monetary metal held as a store of value and is therefore far less sensitive to price-induced demand losses.

Volatility as a warning signal

The current level of volatility in silver is increasingly unsustainable and raises the risk of disorderly market conditions, potentially resulting in sharp price moves in both directions. For both bulls and bears, the market has become difficult to trade, with wide intraday ranges undermining risk management and position sizing.

The current and intense focus on the white metal – now a frequent talking point in the media, at dinner tables and even in workplaces where metals are rarely discussed – illustrates how far this story has travelled. This attention has translated into extreme activity across products offering exposure to silver, especially retail demand for coins and small bars. Another example is the options market in the iShares Silver ETF (SLV), where total option volumes on Monday surged to almost one-and-a-half times those of the highly popular QQQ ETF tracking the Nasdaq 100. Notably, short interest in SLV has fallen to a five-year low of just 0.7%, another sign that positioning risks are becoming increasingly one-directional. 

Looking ahead, we continue to expect the silver supply-demand balance to improve, thereby reducing its supportive impact on prices. Industrial demand is likely to slow at elevated prices, while consumers worldwide may take advantage of the rally to sell back long-held bars, jewellery and silverware following a seven-fold price increase over the past decade. Secondary supply, often overlooked during momentum-driven rallies, will take time to manifest themselves, but when they do, the narrative can quickly change. 

Strategic implications

In short, while silver may remain too attractive for some investors to ignore in the near term, particularly those with a tactical or momentum-driven approach, the risk-reward profile has deteriorated materially. Volatility, rather than direction, has become the defining feature of the market.

For investors seeking strategic exposure to hard assets, we continue to see gold as the more robust choice. While near-term consolidation risks are rising after the rapid move above USD 5,000, underlying central-bank demand, persistent fiscal concerns and geopolitical uncertainty should continue to shield gold from a major correction. In a world still grappling with debt, policy unpredictability and fragile confidence in fiat systems, gold remains the grown-up in the room – even if silver is currently stealing the headlines.