Gold and Silver Prices Remain Volatile Amid Conflicting Forces
The precious metals market remains highly volatile, trading within a narrow range despite significant geopolitical and economic developments. Gold and silver prices have been influenced by conflicting forces, including rising long-term real interest rates and declining confidence in government bonds.
Following the Federal Reserve's latest policy decision to leave interest rates unchanged, the bond market tightened financial conditions through rising long-term yields. This environment creates conflicting forces for gold and silver, with rising real interest rates weighing on prices while declining bond market confidence strengthens gold's appeal as an alternative store of value.
The escalating conflict between the US and Iran has increased inflation concerns, driving up energy prices and reinforcing the Federal Reserve's cautious approach to monetary policy. However, this geopolitical risk also created selling pressure in the gold market, with financially strained Gulf states and countries such as Turkey reportedly selling portions of their gold reserves to stabilize their currencies.
Despite these challenges, China's systematic accumulation of gold remains the dominant long-term narrative, with estimates suggesting that China has accumulated around 29,500 tonnes since 1949. The People's Bank of China reports official gold reserves of around 2,300 tonnes, but discrepancies in reported central bank purchases and actual gold flows suggest true holdings could be closer to 5,200 tonnes.
China's expanding Shanghai Gold Exchange and strengthening Hong Kong as an offshore gold trading center are also supporting the broader internationalization of the renminbi. BMO continues to forecast additional upside for gold during the second half of 2026, targeting around US$4,750 by the fourth quarter once inflation concerns related to the conflict begin to ease.
Silver, on the other hand, finds itself in a particularly difficult position, lacking structural central bank demand and being more dependent on real interest rates and industrial demand. Despite this, silver has been attempting to establish a slow, narrow bottoming formation since late June, leaving a potentially bullish wedge pattern intact.