Despite heightened geopolitical tensions, new tariffs, and rising inflation, gold and silver appear poised for a temporary pause in their recent rallies, according to Rhona O’Connell, Head of Market Analysis for EMEA & Asia at StoneX.
Geopolitical and Policy Pressures Supporting Precious Metals
Recent developments in the Middle East, particularly the escalation of conflict with Iran, have created a natural risk-off environment, traditionally supportive of gold and silver. “The attacks on Iran and the subsequent regional retaliation have boosted gold and silver, while oil has reacted to potential supply shocks,” O’Connell noted.
Further complicating the market landscape are legal and policy uncertainties surrounding U.S. tariffs. The Supreme Court’s ruling on the International Emergency Economic Powers Act (IEEPA) tariffs, coupled with President Trump’s stated intention to impose 10% tariffs under S 122 of the Trade Act of 1974, has fueled market speculation. Legal analysts have flagged these proposed tariffs as potentially unlawful, adding another layer of uncertainty for investors.
Rising producer-side inflation also provides additional support for gold. The U.S. Producer Price Index (PPI) posted its largest monthly increase since January 2025, reinforcing the narrative that gold remains a viable hedge against inflationary pressures.
Market Dynamics Suggest Overbought Conditions
Despite these bullish drivers, O’Connell highlighted that both metals are technically overbought. Gold is near the top of its uptrend, with the Relative Strength Index (RSI) approaching 70, signaling limited upside in the near term. Silver, meanwhile, sits on a Fibonacci retracement level following a steep correction, suggesting the need for consolidation before any further gains.
Inventory trends reflect this dynamic. COMEX silver inventories have dropped sharply to 11,207 tonnes, down 5,323 tonnes from end-September levels, moving closer to more normalized ranges of 9,000–10,000 tonnes. Gold inventories have also declined, falling 91 tonnes (8%) since the start of the year to 1,036 tonnes, 11% below the 2025 average. These reductions indicate less speculative overhang in the market, pointing to profit-taking and liquidation that temper immediate price spikes.
ETF Flows and Speculative Positioning
Gold ETFs have seen modest additions this year, while silver ETFs have experienced significant redemptions. CFTC net long positioning is subdued for both metals, with silver net long standing at only 29% of its 12-month average. “There is little exchange-based speculative overhang in either metal, reflecting profit-taking in silver and steady liquidation on COMEX,” O’Connell explained.
This combination of factors suggests that while gold and silver remain fundamentally supported by geopolitical risk and inflation, their recent strength has led to overbought conditions, requiring a technical pause.
Short-Term Outlook: A Breather in Risk-Off Mode
O’Connell believes that this period may act as a consolidation phase rather than a sharp decline. “Gold and silver may have done enough for now and need to unwind overbought conditions, but the downside remains limited. Barring further geopolitical escalation, it is time for a breather,” she said.
The broader context of a risk-off environment, particularly strong demand for the U.S. dollar as a safe haven, continues to influence price movements. Spot gold traded at $5,088.83 per ounce, down 4.38% on the session, while spot silver fell to $82.036, representing an 8.18% loss.
Key Takeaways for Investors
- Geopolitical Risks Remain a Tailwind: Despite technical pauses, regional conflicts and supply disruptions continue to underpin gold and silver as safe-haven assets.
- Technical Overbought Conditions Signal Consolidation: Both metals may see a short-term pause to correct overextended trends before further rallies are possible.
- Inflation Support Persists: Rising producer prices maintain long-term upward pressure on precious metals, reinforcing their hedging appeal.
- Inventory and ETF Flows Moderate Volatility: Reduced speculative positioning and declining inventories indicate that extreme price swings may be tempered in the near term.
Conclusion
While the headlines of war, tariffs, and inflation suggest bullish potential for gold and silver, market mechanics indicate a necessary pause. Overbought technical conditions, coupled with inventory normalization and limited speculative positioning, point to a period of consolidation. Investors should monitor geopolitical developments and inflation trends closely, but the metals’ risk-off appeal remains intact, positioning them well for a potential resumption of upward momentum once market pressures stabilize.