As 2026 begins, gold and silver prices have hit noticeable highs, only to tumble down sharply recently. Gold peaked above US$5,500 per ounce, a record, before plunging to around US$5,068. Silver, which had been rising even faster, hit over US$120 last week but dropped to US$98.50 on the same day.
So, what’s driving these ups and downs? And what should everyday investors know about the risks involved with precious metals right now?
Why Gold Is Surging
Gold has always been a safe haven for investors worried about financial instability. With increasing international tensions and uncertainty around interest rates, many see gold as a reliable investment during turbulent times. Recently, gold’s sharp drop was triggered by market reactions to Kevin Warsh’s nomination for the US Federal Reserve chair role, highlighting the central bank’s influence on global finance.
Interestingly, central banks globally are buying gold at a fast pace. This indicates a collective movement towards securing assets in uncertain times. Retail investors in Australia and beyond are also getting in on the action, treating precious metals as a hedge against instability and an opportunity to ride price surges.
What’s Fueling Silver’s Rise
In comparison to gold, silver’s recent rise has been remarkable. It surged over 60% in just a month. Unlike gold, silver has more diverse applications—it’s crucial in technologies like solar panels and electric vehicles (EVs). Every solar panel, for instance, contains about 20 grams of silver, and the solar industry uses nearly 30% of global silver demand. This dual appeal—both as a safe haven and an industrial commodity—draws in many investors.
Additionally, the silver market has faced a supply deficit for five years, producing more demand than mining can satisfy. Since most silver is a byproduct of mining other metals, expanding supply isn’t as simple as opening new mines.
The Retail Investor Trend
One of Australia’s leading investment platforms, CommSec, has seen a substantial increase in retail investments in silver. Over the past year, silver ETF trades increased a staggering 1,000%, while gold trades grew by 47%. This indicates that everyday investors are more frequently trading silver, often chasing momentum as they observe rising prices.
Silver’s lower per-ounce price and high volatility make it especially attractive for retail investors looking to get in on the precious metals market. Social media discussions and trends can also boost interest, creating a buzz that many find hard to ignore.
Understanding the Risks
While rising prices might entice retail investors, this “fear of missing out” approach carries significant risks. The volatility of precious metals can swing both ways. For example, while silver saw an impressive 269% increase leading up to its recent drop, it also exhibited a staggering 36% volatility, nearly double that of gold’s 20%.
Investing in these metals during high price periods can be hazardous. Often, retail investors buy near the peak, while seasoned professionals and central banks have been accumulating these assets at much lower prices. Furthermore, unlike stocks or bonds, precious metals don’t provide dividends or interest. Your entire return relies on the prices rising further, which recent trends have shown can change rapidly.
Experts recommend keeping precious metals to about 5-15% of a diversified portfolio. With recent price fluctuations, that advice is more important than ever.
As you consider investments in gold or silver, remember that while they can be part of a balanced strategy, awareness of market timing and potential risks is crucial. Staying informed can help you navigate the complexities of investing in precious metals.
