Gold and Silver recover — While big buyers keep accumulating

Gold and silver finally put a winning week on the board. But the more revealing development is what happened while prices were falling: investors poured billions into gold-backed funds, and China stepped up its purchases of physical gold.

The correction rattled short-term traders. It did not send all the bigger buyers running for the exits.

Last week’s recovery came as Treasury yields eased and oil prices retreated, giving precious metals some breathing room.

A well-received auction of 30-year Treasury bonds helped calm the bond market late in the week.

When investors demand less interest to lend Washington money, gold faces less competition from interest-paying assets. The dollar also pulled back from its highs, although it still finished with its fourth consecutive weekly gain.

Those pressures have eased; they have hardly disappeared. The 10-year Treasury yield remained around 5.24% at the end of the week, and inflation-adjusted yields were still elevated.

September’s Fed meeting minutes indicated that most policymakers expected another rate increase before year-end. Traders now see relatively little chance of an October hike, but postponing another increase is different from abandoning one.

That makes the buying beneath the market especially interesting. The World Gold Council reported that global gold ETFs attracted about $10 billion in September, even as gold prices declined. Third-quarter inflows reached a record $31 billion, while holdings rose to an all-time high of 4,256 tonnes.

Investors were adding exposure during a correction, suggesting that many still see reasons to own gold beyond the next Fed meeting.

Meanwhile, leveraged futures traders were reducing their bullish positions. These markets attract different investors with different time horizons, so the divergence deserves attention.

Futures selling can push prices lower quickly, while accumulation in physically backed funds can continue underneath that weakness.

China supplied another example. Its central bank added approximately 23 tonnes of gold in September, the largest monthly addition since 2023, extending its reported buying streak to 23 consecutive months. Publicly admitted reserves now stand near 2,410 tonnes.

Silver faces an additional hurdle because it serves both investors and industry. Concerns about economic growth can restrain buying even when gold attracts defensive interest. On the supply side, First Majestic reported third-quarter silver production down 11% from a year earlier, partly because of labour disruptions.

One company’s results do not establish a market-wide shortage, but they illustrate that mine supply cannot simply expand on command when demand improves.

Wednesday’s consumer inflation report is the main test this week, followed by producer prices Thursday and retail sales Friday.

A softer inflation reading could ease expectations of further Fed tightening and help metals extend their recovery.

A hotter reading could revive the same pressure that drove the recent selloff.

Oil and developments around Iran remain wildcards because energy costs can influence those expectations in either direction.

The longer-term issue has not changed. Higher interest rates may temporarily make government debt more attractive, but they also increase the cost of servicing that debt.

Persistent inflation continues to erode savings, and a stronger dollar against other currencies does not mean it buys more goods.

Gold and silver will remain volatile. The continued accumulation by major buyers suggests the reasons for owning them remain very much alive.