Precious Metals Surge Amid Fed Uncertainty and Geopolitical Tensions

Silver Futures Rally on Safe-Haven Demand

Barchart Silver Futures extended their impressive rally on Tuesday, with March COMEX Silver closing up +4.382 points (+5.72%), climbing to 1-week highs. The surge was driven by multiple supportive factors: escalating geopolitical tensions in Venezuela following US intervention, dovish commentary from Fed Governor Stephen Miran regarding expected Fed rate cuts exceeding 100 basis points, and broader safe-haven appetite. Silver futures also benefited from continued strength in copper markets, which hit record highs. Meanwhile, February COMEX Gold advanced +44.60 points (+1.00%), marking another day of solid gains as investors rotated into precious metals.

Why Central Banks Are Driving Gold Demand

Strong institutional demand continues supporting precious metals prices. China’s central bank boosted gold reserves by 30,000 ounces in November alone, reaching 74.1 million troy ounces—marking the thirteenth consecutive month of reserve accumulation. Global central banks demonstrated similar appetite, purchasing 220 metric tons of gold during Q3, up 28% from Q2. Fund flows also remain constructive, with long holdings in gold ETFs climbing to 3.25-year highs and silver ETF positions reaching 3.5-year highs on December 23.

Dollar Steadies But Faces Headwinds Ahead

The Dollar Index rose +0.30% on Tuesday but stayed below Monday’s 3.5-week peak. Richmond Fed President Tom Barkin’s comments on tax cuts and deregulation supported the greenback, while higher T-note yields strengthened interest rate differentials. However, several factors capped dollar upside: stock market strength reduced safe-haven buying, the December S&P services PMI was revised downward to 52.5 (from 52.9), and Fed Governor Miran’s dovish stance signaled more rate cuts ahead. Markets currently price just an 18% probability of a -25bp rate cut at the January 27-28 FOMC meeting.

Looking at 2026: Currency Divergence Ahead

The medium-term outlook suggests structural headwinds for the dollar. The Fed is expected to cut rates by approximately 50 basis points in 2026, while the BOJ is poised to raise rates by 25bp and the ECB is unlikely to move. Additionally, President Trump’s widely-reported intention to appoint a dovish Fed Chair (with Bloomberg citing Kevin Hassett as the top candidate, seen as the most accommodative option) threatens further dollar depreciation. The Fed’s ongoing $40 billion monthly T-bill purchases, announced in mid-December, add liquidity to financial markets and undermine the dollar’s attractiveness.

EUR/USD Faces Mixed Signals

EUR/USD declined -0.27% but held above 3-week lows. Softer eurozone data weighed on the single currency: December S&P composite PMI was revised lower to 51.5 (from 51.9) and German CPI rose only +0.2% m/m and +2.0% y/y, both missing expectations. These figures suggest the ECB has room to cut rates, but swap markets price virtually no chance of a rate hike at the February 5 meeting.

Yen Pressured Despite Higher Yields

USD/JPY edged up +0.15% as higher US Treasury yields offset yen strength from the Bank of Japan’s own rate increases. Japan’s 10-year JGB yield reached a 27-year high of 2.139%, supporting the yen’s interest rate differentials. However, Prime Minister Takaichi’s proposed record defense spending boost—part of a 122.3 trillion yen ($780 billion) budget—continues to weigh on fiscal sentiment. Markets show 0% probability of a BOJ rate hike at the January 23 meeting.

The Bigger Picture for Silver and Gold

Barchart Silver Futures and broader precious metals remain supported by a convergence of structural factors: elevated geopolitical risks spanning Venezuela, Ukraine, and the Middle East; uncertainty around Trump administration tariff policies; expectations of easier US monetary policy; and strong international central bank demand. With the Fed signaling more accommodation and liquidity injections continuing, investors should closely monitor precious metals as inflation hedges and portfolio diversifiers throughout 2026.