Precious Metals Surge as Monetary Policy Shifts

Gold XC0009655157

A pivotal interest rate cut by the U.S. Federal Reserve has injected fresh momentum into the precious metals sector. While gold is scaling new heights, silver has emerged as the standout performer, shattering its previous all-time record. This raises key questions: to what extent is U.S. monetary policy fueling this rally, and how stable is the underlying market structure?

The current surge is being led decisively by silver. The industrial metal achieved a historic peak, reaching $64.31 per troy ounce. Since the start of the year, its price has more than doubled, representing an increase exceeding 110%.

This remarkable performance is underpinned by a confluence of factors:
- A substantial rise in industrial demand
- Declining global inventory levels
- Its official designation as a "critical mineral" by the U.S. government
- A tangible physical supply tightness observed since October

Market analysts note a powerful spillover effect across the precious metals complex. Silver's strength is providing upward traction not only for gold but also for platinum and palladium, indicating a broad-based momentum rather than a single-metal phenomenon.

The Fed's Pivot: A Core Catalyst

The immediate trigger for the rally was the Federal Reserve's decision to lower its benchmark interest rate by 25 basis points to a target range of 3.50% to 3.75%—its lowest level in three years. Although the vote was not unanimous, with three FOMC members dissenting, the move sent a clear signal of a continued supportive interest rate environment.

A direct consequence was a weakening of the U.S. dollar to an eight-week low, making dollar-denominated gold cheaper for international buyers and bolstering demand. The gold price rallied to over $4,280 per ounce on Thursday and established a fresh 52-week high with a Friday closing price of $4,329.80. This represented a weekly gain of 2.42%.

Key Metrics at a Glance:
- Friday's Close: $4,329.80
- 52-Week High: $4,329.80 (December 12, 2025)
- Gap to 52-Week Low: 9.86%
- RSI (14-day): 57.7 (moderately above midpoint, not yet at extreme levels)

Market activity remains spirited but not frenzied, as evidenced by an annualized 30-day volatility reading of 14.45%.

Monetary Policy Remains the Key Driver

Looking ahead, the trajectory of interest rates will continue to be the primary lever for precious metals. Following the decision, Fed Chair Jerome Powell suggested a pause in further cuts, indicating the central bank will monitor developments in the labor market and inflation, which it still views as "somewhat elevated."

Current Fed projections now imply only one additional rate cut in 2026—fewer than many market participants had anticipated. Despite this, gold reacted positively. The rationale is that even a shallower cutting cycle sustains an environment of low real interest rates, enhancing the appeal of non-yielding bullion compared to bonds.

In this context, RBC Capital Markets has revised its long-term gold forecasts upward. The bank now anticipates an average gold price of $4,600 in 2026 and $5,100 in 2027, citing key drivers:
- Persistent geopolitical risks
- A generally accommodative monetary policy stance
- High and sustained fiscal deficits

Physical Market Demonstrates Orderly Strength

Despite sharp price advances, the physical bullion market is functioning in an orderly manner. Conditions in the German market, for instance, appear stable. Notably, percentage premiums over the spot price have declined, a function of the high absolute price level.

Current premiums are approximately:
- Krugerrand: ~3.63%
- 100-gram Gold Bar: ~2.06%

With the Christmas period approaching, many standard products are temporarily sold out or available only with extended delivery times. However, there are no signs of panic buying. The combination of solid demand and relatively moderate premiums points to a healthy market without excessive speculation.

Next Focus: U.S. Labor Market Data

The next potential directional catalyst will be the upcoming U.S. employment report. The Non-Farm Payrolls data for November, scheduled for release on December 16, will be closely watched. A weaker-than-expected report could reignite expectations for more aggressive Fed easing, providing additional tailwinds for gold. Conversely, if the labor market remains robust, the current uptrend may consolidate over time rather than through further sharp price leaps.