The cautionary tale of gold and silver
Precious metals mania is just one area of excess in the financial system
The editorial board
The fairytale ending for amateur investors seeking life-changing riches in precious metals has, with grim inevitability, fizzled out of view.
This is another cautionary tale for all investors that in markets, if it seems too good to be true, it probably is.
It is a warning sign, too, over other pockets of speculative excess elsewhere in financial markets.
Gold and silver have had quite a ride.
Prices of both pushed steadily and impressively higher in 2025 but then went parabolic at the start of this year.
For gold, a more than 25 per cent ascent during January took the price to over $5,500 a troy ounce, far above any previous record.
Silver — often known as “gold on steroids” — ended 2025 at $70 and then added another 60 per cent in value in the early part of this year, hitting a dizzying $120.
What goes up, at speed, simply has to fall back down, without some kind of meaningful and abrupt change in fundamental drivers.
At their heights, both metals ran out of oxygen, generating the biggest drop in gold prices since the financial crisis of 2008 and, last Friday, a 33 per cent drop in silver over the course of a single day.
Precious metals warriors will, quite reasonably, point out that prices are still much higher than they were a year ago.
Indeed, early investors have reaped bumper returns.
Online forums for retail investors involved in this surge are urging fellow travellers to hold on, “keep on stacking”, or buy the dip.
That is understandable, and in the long term may even be right.
But for those more allergic to such high levels of market volatility, it is worth considering the drivers behind the ascent and retreat.
The price surge does have some solid macroeconomic and financial underpinnings.
Large asset managers are looking for safety, one of gold’s main selling points, and in many cases for alternatives to the dollar as a hedge against uncertainty.
Silver, which tends to mirror gold, has tagged along too.
But the speed of the final dramatic stage of the rally, and the seeds of its demise, appears to be a classic speculative frenzy.
Websites specialising in precious metals sales to the public, and brokers offering exposure to their performance, have been swamped with demand from a generation of retail traders who are skilled at picking targets and working as a pack to generate big returns.
Silver, in particular, is a small market, with limited stashes available for day-to-day trading.
Large, excitable crowds rushing into small markets are a recipe for wild volatility, especially when a chunk of these bets are financed with borrowed money.
And when enthusiasm outstrips liquidity, the last people to buy are often left with losses.
At the margin, US President Donald Trump’s nomination last week of Kevin Warsh to lead the US Federal Reserve from May also helped to stabilise the dollar and contributed to the cooling in metals markets.
The former central bank governor has been viewed by investors as an orthodox pick, relative to other shortlisted candidates.
It is important to keep in mind that the precious metals mania is just one extreme area of excess in the financial system.
In cryptocurrency, private capital markets and indeed the current AI-fuelled stock market boom, periods of spectacular gains should act as red flags, not just a calling card.
Bitcoin on Thursday sank below $70,000 for the first time since November 2024,
Still, it is unwise to underestimate the force of speculative packs.
Just a couple of days after the pullback, gold is up a touch from its trough, though silver has fallen further.
The volatility is too much for many investors’ nerves, but true believers have high pain thresholds and impressive resilience.
Speculative fervour is not going away.
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