(Kitco News) - The new year continues to provide the precious metals sector with powerful momentum, as silver prices push past $100 an ounce and gold knocks on the door of $5,000 an ounce.
Although momentum indicators show that both precious metals are extremely overextended, analysts say the price action reflects strong fundamental support.
“Momentum has clearly become part of the story, with FOMO playing a visible role as prices push into uncharted territory. Yet it would be a mistake to dismiss the rally as purely speculative.
The broader macro backdrop continues to tilt in favor of precious metals,” said Ole Hansen, head of commodity strategy at Saxo Bank. “Central-bank demand remains firm, reinforcing gold’s role as a reserve diversifier at a time when confidence in fiscal discipline is increasingly fragile, with persistent government borrowing and a lack of clarity on long-term debt sustainability.”
Although geopolitical tensions have eased slightly after President Trump ruled out using military force to annex Greenland from Denmark, he continues to pressure the European Union to give up its claims on the Arctic island.
Trump’s threats are forcing some European investment firms and pension funds to revalue their U.S. bond holdings. Earlier this week, Denmark’s AkademikerPension said it would sell $100 million in bonds by the end of the month because of the U.S. government’s growing debt.
“The potential realignment of the global order, or at least a change in the U.S. posture in the global order, is a reason that you want to fill the holes in your portfolio with something other than fiat currencies,” said Chris Vecchio, head of futures strategies and forex at Tastylive.com. “We need something that isn't tethered to the fiat world.”
Neil Welsh, head of metals at Britannia Global Markets, said that while the price action in gold and silver looks frothy, it makes sense when viewed within the broader market landscape.
“Current price levels make sense when considering central bank accumulation and geopolitical tensions. It looks more like a debasement trade rather than a speculative bubble. The major central banks will likely continue their buying regardless of price action, as you said,” he said. “It is possible that portfolio managers continue to reallocate toward gold, especially when analysts, including Goldman Sachs, JP Morgan, Deutsche Bank, and others, have recently published bullish forecasts.”
Although all eyes are on $5,000 an ounce, Aaron Hill, chief market analyst at FP Markets, said that given the precious metal’s current momentum, prices have room to move much higher.
“Gold's got that ‘nothing can stop it’ feel right now — every dip gets swallowed within hours, and the order book is stacked with bids. $5k is basically inevitable at this point, and the way central banks are still piling in (price be damned), I wouldn’t be shocked to see $5,200–$5,400 before we even get a proper correction,” he said. “Silver’s even more mental. Technically, we’re overbought, but the fundamentals are overwhelming the charts. Too much real money chasing too little metal. Every pullback is just fuel. Dip-buying is still the only play that makes sense. If we get a quick washout to $4,850–$4,900 on some headline relief, I’m backing up the truck.”
Gold’s safe-haven appeal and the ongoing dollar debasement trade are overshadowing traditional market headwinds, such as stable interest rates.
The Federal Reserve’s monetary policy meeting will be the main economic event next week; however, markets are not expecting the central bank to make any major changes.
Analysts note that U.S. inflation data continue to highlight stubborn consumer prices and resilient economic activity and labor markets, meaning the central bank is in no hurry to ease interest rates.
According to the CME FedWatch Tool, markets are not expecting the central bank to cut interest rates until June.
Along with the Federal Reserve, the Bank of Canada will announce its monetary policy decision, with markets also expecting rates to remain unchanged.
Meanwhile, manufacturing data and consumer confidence numbers are expected to inject some volatility into markets early next week.
Economic data to watch next week:
Monday: US Durable Goods
Tuesday: US Consumer Confidence
Wednesday: Bank of Canada monetary policy decision, Federal Reserve monetary policy decision
Thursday: US weekly jobless claims
Friday: US Producer Price Index
