【MACRO Alert】 Gold bull market continues to be strong: Gold and silver diverge under the prospect of

A weaker dollar and prospects for a trade deal boosted

The dollar fell against other major currencies, mainly due to speculation about the progress of a U.S. trade deal. U.S. President Trump said the administration could reach a deal this week. Investors are closely watching the scope and nature of the trade and tariff agreement, especially whether it involves coordinated efforts among global policymakers to further weaken the dollar. Trump's trade policies have weakened the dollar's role as a traditional safe haven, prompting investors to increase their allocations to non-U.S. assets.

A weaker dollar not only boosts golds appeal, it also makes it less expensive for buyers of other currencies, further boosting prices. Gold prices have surged more than 25% this year, hitting a record high of $3,500 an ounce in April. In contrast, the Bloomberg Dollar Spot Index is down nearly 7% this year, its biggest drop since its launch. Data from the U.S. Commodity Futures Trading Commission (CFTC) showed that traders in the speculative derivatives market are the most bearish on the dollar since September last year.

The central bank's gold purchases broke the historical pattern of gold-silver linkage

Historically, gold and silver prices have been highly correlated, mainly because their investment flows (such as ETF demand and COMEX net managed fund positions) usually move in sync. However, since 2022, the gold-silver price ratio has broken through the historical range and is currently maintained at a high level. Goldman Sachs' precious metals research team pointed out that the structural growth of central bank gold demand is a key factor in pushing up gold prices, while silver has not received the same support. After Russia's foreign exchange reserves were frozen, the central bank's gold purchases surged fivefold, but this trend did not extend to silver.

Gold's scarcity, high unit value and stable chemical properties make it more suitable for reserve management, while silver has a lower status in reserve assets due to its abundant reserves, low value and easy oxidation and deterioration. In addition, silver is not included in the IMF reserve framework, and its industrial attributes lead to its poor performance in economic downturns, greater volatility and poor liquidity. Although silver is supported by industrial demand (such as the photovoltaic boom), it has never been able to narrow the gap with gold.

Silver has little hope of rebounding, but gold has a clear bull trend

Goldman Sachs reiterated its structural bullish view on gold, predicting that the price of gold will reach $3,700/ounce by the end of the year and $4,000/ounce by mid-2026. If US policies trigger a recession, accelerated ETF inflows may push the gold price to $3,880 by the end of the year. In extreme cases (such as the Fed's policy being questioned or the US reserve policy changing), the gold price may reach $4,500 by the end of 2025. Goldman Sachs believes that now is an attractive entry point for long-term investment in gold.

Although the possible agreement between Ukraine and Russia may lead to a short-term drop of 3% in gold prices, long-term investors with low leverage can absorb this short-term volatility risk. Goldman Sachs recommends that long-term investors add to their positions on dips, but leveraged investors should be wary of volatility risks. In contrast, silver's catch-up rally is unlikely. Although silver may benefit from renewed investor interest, its performance is unlikely to be in line with gold. However, when gold investment demand picks up, silver may also follow suit, as shown by the rebound in the first quarter of 2025, when ETF inflows and speculative buying supported both gold and silver.

Conditions and market outlook for gold to breakout from range

Galaxy Securities pointed out that gold may need to wait for the Fed to cut interest rates or physical gold demand to break out of the range. In the future, we need to further observe the US economic situation, whether it is stagflation or recession. If stagflation occurs and the Fed does not cut interest rates, gold is likely to fluctuate upward; if it enters a recession, gold will follow other commodities to pull back until the Fed starts to cut interest rates. At present, the fluctuation range of gold has been raised to US$3,150 to US$3,550, and it is expected to rise to more than US$3,700 after the Fed cuts interest rates.

Analyst Christopher Lewis believes that although it is uncertain how much upside there is, it is not advisable to short in the current environment. The $3,200 level is expected to become a key support level that the market generally pays attention to. Overall, gold is in a bull market pattern, and the market generally regards gold as an ideal target for “buying on pullbacks”. This trading logic has continued to dominate the gold market for a long time and is still continuing.