Why do analysts remain optimistic about the long-term trend despite the rapid correction in precious metals at the end of the year

Despite experiencing short-term market volatility, industry experts generally believe that the long-term outlook for precious metals remains promising. At the end of the year, financial markets saw intense fluctuations in precious metals, with prices of commodities like gold and silver dropping sharply, drawing investor attention. What factors triggered this wave of market movement? How do analysts view the subsequent trend?

Year-End Liquidity Crisis and Margin Increases Triggering Simultaneous Decline in Precious Metals

The market turbulence was caused by multiple overlapping factors. The year-end period coincides with the holiday season, when market liquidity is notably low, making small capital movements more impactful. At the same time, CME announced increased margin requirements for futures contracts on metals such as gold, silver, palladium, platinum, and lithium, which became the final straw.

When exchanges raise margin requirements, existing traders are forced to commit more cash to maintain their positions. For capital-constrained speculators, the only options are to reduce or close their positions, further intensifying selling pressure. Michael Haigh, Head of Fixed Income and Commodities Research at Societe Generale, noted that year-end markets often experience extreme liquidity shortages, so these fluctuations should not be overinterpreted as indicating deeper structural changes.

During this adjustment, gold prices temporarily fell over 4%, approaching $4,300 per ounce, while silver declined 9% to $70.53 per ounce. Additionally, platinum plunged 14.45%, and palladium dropped 15.79%, leading to a concentrated sell-off across the entire precious metals sector. Fortunately, after this short-term correction, prices rebounded: gold recovered to $4,354 per ounce, and silver to $73.10 per ounce.

Silver Faces Short-Term Challenges, but Physical Premiums and Industrial Demand Support Long-Term Potential

Regarding silver’s future prospects, Alexander Campbell, former Head of Commodities at Bridgewater Associates, believes silver faces multiple short-term hurdles. Tax-related end-of-quarter selling and the margin hikes by CME have created downward pressure. He recommends investors adopt a wait-and-see approach until these obstacles are resolved before re-entering the market.

However, from a long-term perspective, Campbell remains optimistic about silver. He observed an interesting market phenomenon: Dubai’s spot silver trading price is around $91 per ounce, Shanghai’s market price is about $85, but COMEX futures are only around $75. This significant gap between physical market prices and futures indicates a strong long-term demand outlook for silver.

The industrial sector also provides robust support. As solar energy industries expand and data centers accelerate construction, industrial demand for silver continues to grow, offering solid fundamental backing for prices.

Gold Remains Under Pressure at High Levels, with Fed Policies and Economic Concerns Providing Mid-Term Support

The short-term trend of gold also warrants attention. UBS analysts note that gold is currently at relatively high levels and faces some profit-taking pressure. If the Fed adopts a more hawkish stance unexpectedly, coupled with large ETF outflows, gold could face downside risks.

However, from a medium- to long-term view, UBS remains bullish on gold. The rationale for continued growth remains intact: real interest rates are low, global economic growth prospects are uncertain, and domestic political and fiscal uncertainties in the U.S. persist. These factors are expected to support steady growth in gold demand through 2026.

UBS forecasts that in the first three quarters of the upcoming year, gold prices could approach the $5,000 per ounce mark. If U.S. political or economic conditions become more turbulent than expected, gold could even surge to $5,400 per ounce.

Year-End Volatility Does Not Signal a Trend Reversal; Long-Term Investment Logic in Precious Metals Remains Valid

In summary, the sharp decline in precious metals at year-end is not the beginning of a new trend but rather a technical correction amid extremely low liquidity conditions. Whether due to margin hikes or profit-taking before holidays, these are short-term disturbances.

The true drivers of future precious metals trends are deeper factors: ongoing monetary easing expectations by central banks, economic growth uncertainties, and sustained industrial demand. For medium- and long-term investors, the year-end volatility may present a good opportunity to position. Short-term noise should not alter long-term strategic outlooks.