[A brief note] On the Present Condition of Precious Metals

In a prior address to my readers (see below: Concerning the State of Affairs in Iran), I observed that the conflict in Iran had begun to alter the disposition of market participants, drawing them away from the pursuit of risk and toward the preservation of capital.

This shift, which the practitioner calls a transition from risk-on to risk-off, is the natural response of rational agents to the perception of danger. And what follows from it is equally rational: a tightening of financial conditions, which in turn explains the behavior we now observe across several asset classes, and most pointedly in precious metals.

Before proceeding, I must note something that the careful observer will have already detected: precious metals, in recent years, have ceased to behave as they once did. Historically, gold and silver declined when government bond yields rose, and rose when yields fell. This relationship has inverted. They now move together, thus rising with yields and similarly falling with them. The causes of this anomaly are important and worth examining at length, but that examination belongs to another occasion. For now, it is sufficient to acknowledge the fact.

To understand the present moment, one must study what occurred following the FOMC meeting in August ‘25, and the official nomination of Sanae Takaichi as Prime Minister of Japan in October ’25. The change in tone and focus, away from inflation and towards labor, at a time of persistently high inflation, was perceived as a loss of credibility by market participants. And with regards to Takaichi’s ascent to power, it carried the strong expectation, confirmed shortly thereafter, of an expansionary fiscal stance. Thus markets responded accordingly.

Then, on December 10th, the Federal Open Market Committee issued a statement announcing a quasi-quantitative easing program, presented as a measure “necessary” to preserve stability in the money markets. This was precisely what Ray Dalio described as “stimulating into a bubble,” that is, the injection of liquidity into markets already inflated by speculation.

Naturally, precious metals, most notably silver, rose sharply afterwards. The cause was not any improvement in the underlying fundamentals, but rather an accumulation of speculative positions by those who anticipated that loose money would continue to drive prices upward.

The ascent was steep and rapid, almost parabolic.

But now, alas, the outbreak and escalation of the conflict in Iran has reversed this dynamic with equal force. Risk assets, among which silver (and to a lesser extent gold) must be counted, were sold and leverage was unwound. The trade that had been most fashionable among speculators; which consisted of holding risk assets long while being short long-dated government bonds; is being dismantled by force.

This is the mechanism one must understand. The poor performance of gold and silver at present is not a judgment on their ultimate worth. It is, once again, the result of positions being unwound.

My conclusions are therefore as follows: so long as the conflict persists and intensifies, so too will the unwinding of speculative positions. Financial conditions will remain tight, yields will press higher, and the prices of gold and silver will remain under pressure. In the long run, both metals will resume their ascent, for the structural forces that have driven them higher over recent years have not been resolved. Nonetheless, at this moment, the forces are aligned against them, and prudence demands that we acknowledge this plainly.

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Disclosure & Disclaimer: This publication is provided for informational purposes only. Nothing herein constitutes an offer to sell, a solicitation to buy, or personalized investment advice. The author may hold positions in the securities discussed. Please consult with a professional advisor before making any financial decisions.