Precious metals soared this year, continuing strong gains seen in late last year. Of course, the main catalyst has been geopolitics. However, after the Greenland keffulfe was diffused on Wednesday, gold and silver prices have continued to rise. What is driving this extraordinary move in precious metals, and will it continue?

Gold prices came really close to hitting $5,000 per ounce between Thursday and early Friday, peaking above $4,950. Silver’s gains have been even more impressive as it rose to just shy of the $100 per ounce level, having risen more than 35% in less than a month since the start of the year. Traders are now looking at upcoming events, such as next week’s FOMC, for signs that the trend will continue.
 

More than Just Geopolitics

Last week, there were signs that gold was approaching a ceiling. Twice it hit new record highs, only to quickly retrace amid profit-taking. Then, US President Donald Trump shocked makers and the diplomatic world by threatening tariffs on European allies over the Greenland issue. Investors dived for safe havens, pushing up the entirety of the precious metals complex.

But Trump backed off his threats relatively quickly, saying by Wednesday that he’d reached a framework agreement on Greenland. Markets, which hadn’t been convinced he would go through with the threat anyway, only had a muted reaction to the news. Safe haven demand did not abate much. Part of that could be that the Greenland saga deepened trade divisions between the world’s two largest economies, and the rapprochement did not undo the damage. The EU Parliament agreed to delay the ratification of the US-EU trade agreement signed last year. Representatives gathered in Strasbourg expressed growing distrust of the US, and the trade deal faces greater obstacles to passing Parliament.
 

Other Issues Remain

The greenback weakened substantially over the last week, which naturally supported precious metals priced in dollars. There were rumors, none of which were confirmed, that EU-based funds were selling US debt to punish America for its president’s actions regarding Greenland. Nevertheless, US yields rose while the dollar weakened, a sign of growing distrust in the global reserve currency.

China, the world’s largest gold buyer, is seen capitalizing on the situation. The PBOC, for example, set the lowest daily reference rate for the yuan in two years, below 7-per dollar. Emerging-market indices rose, along with US small-cap companies, both signs that traders were seeking yields. The strongest currencies were the Aussie and Kiwi dollars, which rely on exports to China, particularly of value-storing commodities. All of this pointed to the de-dollarization trade remaining in effect despite easing geopolitical tensions across the Atlantic.
 

Where To From Here?

While gold remains the premier go-to for traders seeking to protect their assets amid market volatility, silver’s outperformance has caught the attention of many analysts. Most silver is used in industrial applications, including solar panels, a growing industry amid the energy transition. Supply, in fact, is not keeping up with demand, and it would take years to develop new silver mines. In fact, most silver is produced as a byproduct of other mining operations, such as copper mining.

With Venezuela, Iran, and now renewed discussions over the war in Ukraine, geopolitical risk remains high for the market. A more dovish Fed or US economic underperformance could additionally support precious metals in that scenario.

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