On Monday, the United States and China announced substantial tariff reductions, resulting in a pullback of gold prices to a support level of $3,200, though they did not break below it. Given that traders were overwhelmingly pessimistic about gold during Monday’s morning session, this development is noteworthy. While the truce alleviates recession risks and supports other assets—particularly equities, which are showing a strong risk-on trend—the announcement has also strengthened the U.S. dollar against major currencies. Additionally, the ceasefire between Pakistan and India, coupled with heightened attention to a resolution in the Russia-Ukraine conflict, has helped ease geopolitical tensions, reducing demand for safe-haven assets. Furthermore, Bitcoin, a controversial alternative to gold, has surged back above $100,000, further diminishing interest in gold (at least for the time being).
After reaching a peak of 89.8 million ounces on April 21, gold ETF investment demand (especially in ETFs registered in the West) has only slightly decreased by 934,000 ounces. Speculators in COMEX futures, including hedge funds and other managed accounts as defined by the CFTC, have been net sellers in the futures market for the past seven weeks. In the most recent reporting week ending May 6, this trend peaked with open interest dropping to 18.1 million ounces, marking a 42% decrease since early February.
Regarding silver, speculators hold relatively small net long positions in COMEX silver futures, and ETF demand has struggled to gain momentum. This highlights the challenges facing silver, as it is heavily reliant on industrial demand, which has been impacted by the U.S.-China trade war.
Gold and Silver Investment Demand Through ETFs and Futures
Investor demand for gold remains subdued, particularly from ETF investors and futures speculators, emphasizing the importance of other investor groups, especially Asian investors, particularly from China. In recent months, strong retail demand for Chinese yuan-denominated ETFs has garnered attention. Combined with central bank demand, these two key groups have successfully supported gold prices and prevented further declines.
We have already reached our target price of $3,500 for gold in 2025 and are currently in a wait-and-see position. However, as several critical structural drivers are unlikely to dissipate in the short term, we still expect the risk for gold prices is to continue rising over time. In the short run, gold is expected to remain in a consolidation phase, with the technical outlook suggesting an increased risk of a further pullback to the critical support levels of $3,155 to $3,165.
Economic Uncertainty Eases, Silver Prices Recover
Despite the dramatic truce in the U.S.-China trade war (at least temporarily), which has negatively impacted gold—strengthening the dollar and reducing safe-haven buying—silver has shown some improvement. The reduction in tariffs and trade tensions has lowered the risk of a full U.S. economic recession later this year while also slowing the downturn in China’s economy. Since silver’s demand is heavily influenced by industrial use (accounting for about 55%), it has managed to recover some ground after Trump’s aggressive “liberation day” speech, which initially caused a decline in silver prices.
Before April, the gold-to-silver ratio had fluctuated within the $5 range (roughly 90 ounces of silver to 1 ounce of gold). However, due to concerns over economic growth and stability spurred by the escalating global trade war, silver prices fell while gold benefited from safe-haven buying, causing the gold-to-silver ratio to surge above 105. The 90-day tariff reductions have led global stock markets to rise, with cyclical commodities such as energy and industrial metals also experiencing buying pressure. This has helped protect silver prices from further declines and reduced the gold-to-silver ratio back below 100, currently at around 98.50. From a technical standpoint, the ratio needs to break below 97.50 to potentially return to the range observed in April.
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