Heightened volatility in the prices of gold and silver in recent days has tempered the rampant euphoria to some extent. Silver traders, in particular, have grown more cautious following such extreme volatility, with trillions wiped from market caps in a single session.
The lingering question is whether this represents a brief pause in the ongoing bull market for precious metals, as many optimists claimed until recently, or if the party has ended, and the cows are now ready to return home.
I have long held firm views on investing in precious metals, which I have shared with readers on multiple occasions. I am pleased to reiterate and expand upon them here, incorporating recent market developments for clarity.
In my view:
• Gold and silver remain deeply embedded in our culture, religion, and traditions. Purchases for social, cultural, religious, or traditional obligations should typically be viewed as consumption rather than investment.
Of course, in times of severe financial hardship, these assets can be liquidated for cash, functioning as a form of insurance or hedge. However, under ordinary circumstances, they fall short of qualifying as true "investments" due to their lack of intrinsic yield or productive capacity, unlike equities or bonds.
• The latest arguments supporting gold and silver as investments often fail scrutiny. For instance, the case for soaring gold prices hinges largely on expectations of a weakening and diminishing US dollar (USD). The two main drivers cited are (i) erosion of its dominance in global trade and finance, and (ii) the US government's unsustainable debt burden, now exceeding $35 trillion.
If that be true, the USD's hegemony could fracture through de-dollarization efforts, such as those discussed in BRICS forums. Yet, if the USD loses its reserve status, a divided global landscape is unlikely to agree on a single alternative—or even a basket of fiat currencies. The uneven distribution of gold reserves across nations makes a gold-backed system improbable as a universal replacement.
Furthermore, should the USD weaken significantly, commodity pricing (including gold) might shift away from dollars toward stronger currencies like the JPY, EUR, CNY, GBP, or AUD, potentially driving sharply lower nominal prices for these assets.
Second, a depreciated USD could enhance US export competitiveness, incentivizing reshoring of manufacturing and leaving excess capacity in Asia—a scenario that proved massively disinflationary during past trade shifts, as seen in the 2010s.
Third, if the US attempts to inflate its way out of debt by devaluing the USD, funding its escalating fiscal deficits becomes precarious. Investors would shy away from depreciating US Treasuries (USTs), forcing austerity measures. Such fiscal tightening could emerge as the most potent disinflationary force of the 21st century, as evidenced by recent market reactions to hawkish Fed nominations.
In this disinflationary environment holding gold as an inflation or currency hedge loses much of its appeal, as safe-haven flows reverse during deleveraging events.
• The rationale for silver's upward trajectory is equally unpersuasive. A core economic tenet holds that industrial commodities are predominantly price takers: demand for end products dictates raw material prices, not the reverse.
A 250% surge in silver prices—anticipating future industrial demand years ahead—defies this logic, especially when recent crashes reveal overleveraged speculation rather than fundamentals.
Moreover, economic historians recall that silver once rivaled or surpassed gold as a monetary metal for decades, with demand far exceeding today's levels. If heightened industrial use (e.g., in solar or EVs) does materialize, it wouldn't be unprecedented. Recall the repeatedly hyped "peak oil" narrative, peddled until 2009 but now obsolete due to technological advancements like shale extraction—similar innovations could temper silver's supply constraints.
• Regarding the recent sharp upmove and subsequent collapses in gold and silver prices, I regard them as raging rivers swollen by speculative floods. Traders can choose to dive in and ride the current or wisely observe from the banks. Attempting to navigate with full control, as if in a sturdy boat, is illusory.
History shows that in nearly every precious metal bull cycle—from the 1980 silver bubble to the 2011 peak—most participants suffer losses, while only a fortunate few emerge profitable. The 2025-2026 euphoria, fueled by geopolitical hype and retail frenzy, followed by trillion-dollar wipeouts, proves this time is no different.