(Kitco News) - Growing volatility in gold and silver is flashing a warning signal that investors should consider locking in some profits - but a new setup may be coming, according to one market strategist.
In a recent interview with Kitco News, Michele Schneider, Chief Market Strategist at MarketGauge, said she has exited all her gold and silver positions as the market looks overextended and vulnerable. Schneider has been out of the precious metals market since early October, when gold prices broke above $4,000 an ounce and silver broke above $50.
Although gold has managed to extend solid gains above $4,000, this has come with significantly elevated volatility. Last Friday, gold experienced its largest one-day decline since May, as the market reacted to U.S. tariff-induced uncertainty.
At the start of the week, gold prices managed to recover most of Friday’s losses. However, on Tuesday, the market was hit with a massive wave of selling during the London market open. Spot gold last traded at $4,152.40 an ounce, down 4.6% on the day, marking its worst session since early August 2020.
Silver is experiencing an even bigger selloff, with prices dropping below $50 an ounce. Spot silver last traded at $48.50 an ounce, down more than 7% on the day. The precious metal is seeing its steepest one-day decline since February 2021.
“I have been bullish on gold and silver for a long time, and I was looking for this parabolic move. The metals have had an incredible run, and it’s okay to get out as long as you know where you want to get back in again,” said Schneider. “For me, $4,000 gold was a really good target, and it’s okay to take profits.”
Schneider said gold’s run over the past two months is starting to look eerily similar to the highs seen in 2011. She said gold appeared underowned earlier in the year, but the investment community has quickly caught up.
According to data from the World Gold Council, global physically backed gold ETFs recorded their largest monthly inflow in September, resulting in the strongest quarter on record. That momentum has carried into early October, with global ETF holdings seeing their biggest weekly increase since March 2020.
“Everyone is now talking about gold. It’s suddenly the lead story on CNBC,” said Schneider. “As a commodity trader, I have to wonder if investors are piling in at the highs.”
Schneider said she is even more concerned about silver, noting that its rally through $50—driven in part by liquidity and supply chain issues in London—looked a lot like the top in 1980, when the Hunt brothers famously tried to corner the silver market.
She recalled that she was just starting out as a commodity trader in the early 1980s and lost her first trading job when the bottom fell out of the market.
“I’ve already lived through this, so I’d like to lock in my profits now and say, ‘Thank you very much,’” she said.
Silver has been extremely volatile as a lack of physical supply in London has caused spot prices to outpace the futures market, causing record backwardation. London’s over-the-counter (OTC) market has seen a steady decline in stockpiles since the start of the year as massive amounts of silver flowed into New York. Bullion banks and other market players have been moving tonnes of the precious metal to the U.S. as the threat of elevated tariffs loomed over the marketplace.
Recently, unprecedented demand from India has further exacerbated the supply crunch. Meanwhile, New York vaults remain near capacity, as growing industrial demand adds a new dynamic to the supply-and-demand picture. In August, the U.S. Geological Survey included silver in its 2025 draft list of critical minerals, citing its increasing importance in global electrification. The list is expected to be finalized before the end of the year. Silver could also face new tariff threats if it is viewed more as a critical metal rather than a monetary asset.
Schneider said that at some point, supply issues in the silverr market will eventually work themselves out, creating a headwind for prices.
Along with overexuberant sentiment, Schneider is also concerned that gold and silver could struggle in a disinflationary environment.
“Unless something breaks—and I think the U.S. economy has been fairly lucky—gold and silver could struggle,” she said. “At $4,000, a lot of bad news has already been priced into this market.”
Although growth has slowed, Schneider said the risk of a recession remains fairly low. At the same time, falling prices for commodities such as oil and sugar point to easing inflationary pressures.
Schneider said that what would get her off the sidelines and back into the precious metals market would be a drop below 79 points in the gold-silver ratio. Silver’s recent underperformance has pushed the ratio to a four-week high, currently trading at 85 points.
“A drop below 79 points is the time to buy silver. Most likely, it’ll be over $50 an ounce, but it could probably go to $60 or $70,” she said.
For gold, Schneider said she would like to see renewed weakness in the greenback. The U.S. dollar has managed to bounce off its August multi-year lows just above 96 points and is currently testing resistance near 99 points.
“This is the trifecta I’m watching. I want to see silver lead the rally, I want to see commodity inflation in sugar, and I want to see a weaker U.S. dollar. That’s when I’ll be buying again,” she said.
