Investor Demand for Bullion Surges

Precious metal demand continues to surge, with record levels of client activity at ABC Bullion.

This is very much part of a global trend, with the rally this week, that has taken prices toward USD $3,750oz for gold and above USD $45oz for silver, well and truly making precious metals the ‘go to’ standout assets of 2025.

Central banks continue to acquire gold, high net worth investors and family offices are adding it to their portfolios en-masse, and respected investment firms like Morgan Stanley are now openly discussing the merits of holding up to 20% of a diversified portfolio in the precious metal.

Silver too is seeing a surge in demand, with its relative affordability and potential for substantial outperformance compared to gold encouraging investors that it may be the preferred precious metal to own for those wanting to maximise returns in this bull market cycle.

While the long-term case for precious metals remains as robust as ever, there are some who are warning of a potential correction, something that is a standard part of any market cycle.

We review the current set up in precious metal markets in our latest update, and how investors are likely to respond.

Is a Gold Pullback Inevitable?

Long-term precious metal investors understand neither gold, silver or platinum go up in a straight line, volatility is the price one must be willing to pay should they wish to enjoy the benefits that these assets can bring to a portfolio.

This is true of most asset classes, apart from cash, though cash comes with an arguably far more dangerous risk, that being the impact of inflation and the reduction in purchasing power of government issued fiat currency.

With gold up more than 35% and silver more than 40% respectively year to date, and with a surge of investment into both metals, there are rising fears that we are approaching a pullback.

Below we share some charts and data that attempt to answer whether this pullback is likely, and perhaps more importantly, how significant it might be, and how investors should approach this period.

The first chart below looks at the USD gold price, and how far above or below the 200-day moving average (200 DMA) it is in both dollars and percentage points.

Sources: LBMA, ABC Bullion

At present, the USD gold price is approximately 17% above the 200DMA, or some USD $535oz.

Since the year 2000, gold has on average traded just 4% above the 200DMA.

The chart makes it clear that while gold is stretched right now – in that it is a fair way above the 200DMA, it has run further in prior periods. The three dates below are examples of this, and show how far above the 200DMA gold got, and the size of the correction that followed.

• 12/04/2024 – 20% above 200DMA. Gold would go on to fall 7%

• 06/08/2020 – 26% above 200DMA. Gold would go on to fall 9%

• 04/09/2019 – 20% above 200DMA. Gold would go on to fall 4%.

 This next chart looks at gold and RSI (14 day), or Relative Strength Index. This is one getting attention on social media, with some commentators pointing out that based on this metric, gold has hit its most overbought level in 45 years.

Sources: LBMA, Bloomberg

With an RSI reading close to 90, gold is indeed overbought based on this metric. However, it must be pointed out that the chart above, and most of the commentary around gold and RSI ignores what happened in the 1970s, which was the last truly great precious metal bull market.

The table below looks at five prior occasions RSI reached 70 or more, and the subsequent movements in RSI, the USD gold price and USD gold price returns in the year that followed.

Sources: LBMA, Bloomberg, ABC Bullion

As you can see, in some instances gold would go onto rise (even as RSI declined), while in other periods, it did experience corrections of up to 9%, which are very standard in a precious metal bull market cycle.

The situation is even more interesting when we look at silver and the RSI there. As per the chart below, silver has surged higher, but RSI has been far more stretched in the past than it is today.

Sources: LBMA, Bloomberg

It is also worth pointing out the gold to silver ratio (GSR) is still sitting above 80. The long-term average is closer to 60, while at the top of precious metal bull markets, its typically below 40.

Another indication about the current state of the market can be gained by looking at gold ETF flows. The first point in this regard is that gold ETF holdings currently represent barely 2% of total US ETF assets, which is lower than where the equivalent reading was in 2020, while in 2011 they made up 8% of total assets. 

The chart below shows the rolling 1 year change in total tonnes going into gold ETFs globally, and the rolling 1 year change in the total value of global gold ETF holdings. While the latter reading has never been higher (in part owing to the surge in the gold price), actual ETF inflows, while impressive, are only approaching 500 tonnes in the past year.

Sources: World Gold Council

The number has been far higher in prior periods (2008, 2016, 2020).

The final chart below looks at both the USD silver price and it’s rolling 1-year return, which currently sit at $44.94 and 41% respectively at the time of writing.

Since the early 1970s, silver has experienced multiple cycles where annual returns surged above 100%, typically coinciding with broader periods of monetary stress, inflation and or speculative froth. More recently, the post-GFC and mining boom era saw silver climb from under USD $10oz to nearly $50oz in just a few years, delivering rolling annual gains in excess of 150%.

There have often been sharp drawdowns that followed those surges. Silver investors must accept that rolling 1-year returns frequently swing into the negative 40% or lower bracket, with 20-30% price declines common from a historical standpoint.

Sources: LBMA, ABC Bullion

The table below demonstrates this, looking at four prior occasions silvers rolling 1-year return reached 40% or more, and the subsequent movements in the USD silver price and USD silver price returns in the year that followed.

As illustrated, three out of the four periods where returns were this elevated ended with a negative return over the subsequent year.

Sources: LBMA, ABC Bullion

Given this historical data, some would argue the silver market is vulnerable to a near-term correction, with history suggesting such volatility is an component of silver bull markets.

Crucially, as it stands today silver’s relative affordability compared to gold (as proxied by the GSR), coupled with its dual role as both a monetary and industrial metal, will likely continue to attract investors seeking asymmetric upside in an environment of geopolitical uncertainty and persistent inflationary pressures both domestically and internationally.

Final comments

No one commentator or analyst can be 100% certain what will happen next with precious metals, or indeed with any other asset class.

There are clearly some data points that suggest both gold and silver have run ‘too far, too fast’, and need a period of consolidation, though there are other data points which suggest this current leg higher potentially has further to run.

For those with sizeable precious metal positions, we can certainly understand that they may wish to lock in some of the recent gains, and indeed we are seeing some of this at ABC Bullion, with sales of metal typically driven by one of three factors.

• Investors who have a disciplined profit taking approach they apply to all asset classes.

• The ability to use the recent gains in gold and silver to pay down debt

• A desire to rebalance their portfolio, with gold and silver likely making up a much higher percentage of their portfolio relative to when they invested, given their outperformance vs most other asset classes in recent times.

Some are also expecting a correction in metal prices and want to have some fresh capital to deploy back into the market at what they believe will be a more opportune time.

From my perspective, I would not be surprised to see the market push a little higher, before entering a period of more subdued returns, in which gold, silver and platinum could well give back some of their recent gains.

At the very least, history suggests one should be prepared for that outcome to eventuate.

More importantly, history also suggests that a period of consolidation will be healthy for the overall precious metal market and will help set the stage for the market to head toward even higher highs between now and the end of this decade.

Thank you for choosing ABC Bullion

Jordan Eliseo
General Manager, ABC Bullion

Luke Tyler
Market and Business Analyst, ABC Bullion

^{Disclaimer: This document has been prepared by Australian Bullion Company (NSW) Pty Limited (ABN 82 002 858 602) (ABC). The information contained in this document or internet related link (collectively, Document) is of a general nature and is provided for information purposes only. It is not intended to constitute advice, nor to influence any person in making a decision in relation to any precious metal or related product. To the extent that any advice is provided in this Document, it is general advice only and has been prepared without taking into account your objectives, financial situation or needs (your Personal Circumstances). Before acting on any such general advice, we recommend that you obtain professional advice and consider the appropriateness of the advice having regard to your Personal Circumstances. If the advice relates to the acquisition, or possible acquisition of any precious metal or related product, you should obtain independent professional advice before making any decision about whether to acquire it. Although the information and opinions contained in this document are based on sources, we believe to be reliable, to the extent permitted by law, ABC and its associated entities do not warrant, represent or guarantee, expressly or impliedly, that the information contained in this document is accurate, complete, reliable or current. The information is subject to change without notice, and we are under no obligation to update it. Past performance is not a reliable indicator of future performance. If you intend to rely on the information, you should independently verify and assess the accuracy and completeness and obtain professional advice regarding its suitability for your Personal Circumstances. To the extent possible, ABC, its associated entities, and any of its or their officers, employees and agents accepts no liability for any loss or damage relating to any use or reliance on the information in this document. It is intended for the use of ABC clients and may not be distributed or reproduced without consent. © Australian Bullion Company (NSW) Pty Limited 2020.}