Over the past week, commodity markets - particularly precious metals – were sold off sharply. Gold fell by roughly US$900 per ounce (-16%) in less than two days, while silver declined even more aggressively, at one point falling close to 40%. The speed of the move was almost more shocking, with prices briefly dropping more than 7% in a matter of minutes before stabilising. Moves of this nature are typically not driven by a sudden change in long-term fundamentals, but by crowded positioning and leverage being forced out of the system.

The selloff came after an extended and increasingly momentum-driven rally. Gold had been trading well above longer-term trend levels, drawing in speculative and systematic flows alongside more traditional investors. Futures and options positioning had become heavily skewed to the long side, leaving the market vulnerable to even small shifts in expectations. Once selling began, liquidity thinned quickly, triggering margin calls, mechanical deleveraging, and further selling by trend-following strategies – amplifying what might otherwise have been a modest pullback.

The immediate catalyst was a sudden shift in expectations around US monetary policy. Precious metals had been supported by the view that President Trump would nominate a Federal Reserve Chair inclined toward aggressive rate cuts, a weaker US dollar, and greater tolerance for inflation which would allow hard assets to run unchecked. That narrative reversed abruptly when Kevin Warsh emerged as the preferred nominee. Warsh is widely regarded as more orthodox and less inclined to aggressively ease policy, which prompted a rebound in the US dollar and an increase in real yields – both clear headwinds for gold and silver. Against the backdrop of stretched positioning, this change in expectations triggered a rapid unwind.

Structural Tailwinds Remain in Place

While the price action has understandably been unsettling, we view last week’s move as a technical and positioning-driven reset rather than a structural break in the broader commodity cycle. Even after the pullback, gold remains meaningfully higher over recent months, and the longer-term drivers that have supported commodities remain in place. History suggests that commodity bull markets are rarely smooth; they tend to progress in sharp advances, followed by abrupt corrections that test conviction before the next leg higher.

Looking beyond the near-term volatility, the medium-to-long-term backdrop for gold remains constructive.

Central Bank Buying and Rotation Out of US Treasuries
Central banks, particularly across emerging markets, are steadily increasing gold allocations while gradually reducing marginal exposure to US Treasuries. This reflects a strategic shift driven by rising US fiscal deficits, heavy bond issuance, and growing duration risk, with gold offering a liquid, credit-independent reserve asset that is not tied to another country’s balance sheet or policy decisions.
The Debasement Trade
The debasement trade reflects concerns around long-term fiscal discipline and monetary credibility rather than near-term inflation alone. In an environment of high and persistent government debt, investors increasingly view gold as long-term insurance against the erosion of fiat purchasing power and the risk that policy priorities favour growth and debt servicing over currency stability.
Geopolitical Risk
Rising geopolitical tension, trade fragmentation, and the increasing use of financial sanctions have reinforced demand for assets that sit outside the global financial system. Gold’s lack of counterparty risk, jurisdictional neutrality, and resilience across political regimes support its role as a structural hedge against ongoing geopolitical uncertainty rather than just episodic crisis events.

Alongside gold, the broader backdrop remains supportive across much of the commodity complex. We currently also favour silver, uranium, and copper, all of which are central to how the global landscape is changing. These markets are relatively small compared to the size of Western government bond markets, which means it doesn’t take a large shift in capital for prices to move meaningfully. As money gradually flows out of paper assets that are vulnerable to inflation and policy intervention, more of it is likely to find its way into hard assets.

At the same time, several resource-intensive transitions are happening in parallel: the electrification of energy systems, the rapid expansion of AI-related infrastructure, and the rearmament of the military-industrial base. Each of these trends requires significant physical inputs, yet supply remains constrained after years of underinvestment, reinforcing the case for sustained demand pressure across key commodities.

From a portfolio perspective, moments like this are really about discipline rather than reaction. Sharp selloffs can create the urge to either exit at the wrong time or chase a quick rebound. Our approach remains measured—keeping position sizes sensible, maintaining diversification, and using volatility to rebalance gradually rather than making all-or-nothing decisions.

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