– Ole Hansen, Head of Commodity Strategy, Saxo Bank
Key points:
● Liquidity over safe haven: gold is being sold to raise cash, not because its long-term role has changed
● Crowded longs unwind: months of strong outperformance have left both gold and silver vulnerable to sharp liquidation as the Middle East conflict has triggered a broad macro economic shock.
● Silver underperforms: higher beta and industrial exposure amplify downside during a period marked by growth concerns and rising funding costs
● Rebound potential: once forced and technical selling fades, macro drivers such as fiscal stress, de-dollarisation, and stagflation risks remain supportive
Gold and silver remain under considerable pressure as the Middle East war continues to trigger a broad macro economic shock across global markets, forcing investors to reprice inflation, rates, growth, and liquidity conditions simultaneously. After many months of strong outperformance, both metals have become vulnerable, not because their strategic case has fundamentally changed, but because they had become crowded longs at a time when investors suddenly needed liquidity.
Equity markets have been selling off amid rising growth concerns as funding costs and bond yields surge amid mounting inflation concerns following what may be the largest disruption to global fuel supply on record. With limited remaining conventional military capacity, Iran is delivering a broad retaliatory shock through energy markets, with global spill over effects widening. On Friday, US 2-year Treasury yields moved above the Fed funds rate for the first time in three years, signalling a rising risk that the next policy move could be a hike rather than a cut.
Gold’s return to its 200-day moving average for the first time since 2023 highlights the scale of the reversal. In the current environment, gold has emerged as one of the more exposed assets, with the sell-off driven by long liquidation, stop-loss selling, and investors raising liquidity. In effect, gold is being sold because it remains one of the few liquid assets still showing gains over the past year.
Silver has come under even heavier pressure, reflecting its higher beta and greater cyclical sensitivity. The sell-off accelerated following the break below USD 80, which from a technical perspective opened the way toward USD 40. Since then, the unwind of previously popular trades has added further downside momentum. Earlier today, silver almost reached the 0.618 Fibonacci extension target at USD 60.80, a level that may offer initial support. Failing that, the 200-day moving average at USD 57.61 stands out as the next key downside level.
The magnitude of the correction is notable. Month-to-date, gold is down 19.4% and silver 30.9%, while year-to-date losses stand at 1.8% and 8.1%, respectively. However, on a one-year basis, gold remains up 38.3% and silver 90.0%, underscoring how strong the preceding rally had been and why the current liquidation phase is proving so intense.
Once the dust settles and the current wave of forced selling runs its course, the outlook for gold in particular may improve again quite sharply. Fiscal debt concerns continue to build, while the risk of stagflation is rising as higher energy costs threaten growth while keeping inflation elevated. In such an environment, policymakers face limited flexibility, which may ultimately renew demand for gold as a hedge against macro instability and currency debasement. Silver may also rebound, but is likely to remain more sensitive to growth concerns in the near term.
