Gold’s deleveraging pullback fails to shake supportive outlook

By Ole Hansen, Head of Commodity Strategy at Saxo

Spot gold’s initial response to last week’s announcement of the steepest US trade barriers in more than 100 years was a move to a fresh record high of USD 3,167 per troy ounce on heightened inflation risks. However, surging volatility in response to collapsing stock markets turned the attention to capital preservation and deleveraging—a focus that hurt all leveraged positions, including those in silver, and not least bullion, which is often considered a safe haven during times of turmoil.

As volatility surged and losses mounted, leveraged traders—such as hedge funds—were forced to reduce their across-the-board exposure. During periods like this, the overriding focus is on bringing down risk and staying liquid enough to meet any margin calls in loss-making positions.

Some demand for both gold and silver has emerged

As the dust begins to settle following one of the worst three-day risk reduction periods in recent years, some demand for both gold and silver has emerged. While the correction in gold has been orderly and within expectations following a record run higher, the 16.5% top-to-bottom, three-day slump in silver has been brutal. Most of the damage was inflicted by a combination of economic growth concerns—as silver derives around 50% of its demand from industrial applications—and a collapse in the COMEX futures premium on speculation that silver, like bullion, would be exempt from tariffs.

A three-day sweep saw silver give back all its strong Q1 2025 gains, in the process breaking the uptrend from early last year and the 200-day moving average, while briefly trading below the December and January lows. The gold–silver ratio exploded higher, hitting levels above 100 ounces of silver per one ounce of gold—levels last seen during the 2020 pandemic spike. In the short term, heightened recession risks and worries about industrial demand may prevent silver from recovering to its recent XAUXAG range between 75 and 92. For XAGUSD, a move back above the 200-day moving average (green line), last at USD 30.90, is needed to signal calmer price action.

Gold’s safe-haven role temporarily received a setback with spiking volatility driving another burst of deleveraging similar to, but so far nowhere near the same scale seen during the early stages of pandemic panic back in 2020 when gold over a ten-day period slumped by 13% before recovering strongly as inflation worries and stimulus helped create fresh demand. Gold prices hit a record high last Thursday before the mentioned deleveraging helped drive a 6.7% top to bottom correction.

However, the combination of heightened global economic tensions, the risk of stagflation, a weaker dollar combined with falling US real yields as inflation expectations rise, will in our opinion continue to support bullion, and to a certain extent also silver.

Adding to this a market that is now aggressively positioning for the Fed to deliver more cuts this year—at current count almost 100 basis points of easing by year end. The recent transfer of gold from around the world to US warehouses monitored by the COMEX futures exchange in order to get supplies behind a potential tariff wall may now see a part reversal after bullion was made exempt, potentially weighing on prices in the short term.

With all the mentioned developments in mind, we maintain our forecast for gold reaching USD 3,300 this year, and given a potential recession risk impacting industrial demand for silver, and based on a gold-silver ratio at 88 we lower our silver target to around USD 37.5, from above USD 40 previously.

Gold’s correction from a fresh record has once again been relatively shallow with several key levels of support yet to be challenged. The most important in our opinion being an area around USD 2,950 which apart from being the February top also represents a 0.382 Fibonacci retracement of the run-up from late December. A rejection before and at this level would signal a weak correction within a strong uptrend.

Developments supporting gold and silver

When we look at developments supporting gold - and silver due its semi-precious link - we focus among others, on:

US Fed Funds rate expectations: Market participants closely watch interest rate expectations set by the Federal Reserve, as they heavily influence the attractiveness of gold. Currently, the futures market is pricing in the possibility of a 75–100 basis point rate cut before year-end, suggesting a more accommodative monetary policy. Lower interest rates reduce the opportunity cost of holding gold (which doesn’t pay interest), thereby supporting its price.

Investment demand for “paper” gold through futures and exchange-traded funds (ETFs): The demand for gold-backed financial products depends on technical market factors, such as price momentum, as well as macroeconomic indicators. In addition, a key factor for investors in ETFs is the cost of holding a non-yielding assets like gold, with the prospect for lower funding cost boosting demand.

Rising US inflation expectations: Investors often turn to gold as a hedge against inflation. Recently, falling real yields (nominal yields minus inflation expectations) across the US Treasury yield curve have signaled growing concerns about future inflation. As inflation expectations rise, the real return on fixed-income assets decreases, increasing the relative appeal of gold.

Rising geopolitical risks: Global instability tends to push investors toward safe-haven assets like gold. A recent correlation between defense stocks and gold suggests that as geopolitical tensions rise—such as conflicts, wars, or diplomatic strains—investors seek safety in gold, thereby supporting its price.

Central bank demand amid continued focus on reducing dependency on the USD: A growing number of central banks are diversifying their reserves away from the US dollar, often turning to gold as a neutral reserve asset. Notably, China, India, Turkey and Russia have been leading this trend. According to official data, the People’s Bank of China (PBoC) increased its gold reserves in March for the fifth consecutive month, underscoring sustained institutional demand.

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