Editor’s Note
This analysis examines the recent volatility in precious metals markets, attributing short-term corrections to specific market events while maintaining a structurally bullish outlook based on sovereign credit risks and geopolitical tensions. The piece also notes the divergent path of industrial metals following the initial adjustment.
This week, precious metals prices experienced a significant correction due to panic-induced long position unwinding triggered by the nomination of Kevin Warsh. However, based on the intensification of sovereign credit risks from high global debt and fiscal constraints, as well as rising geopolitical friction risks, precious metals still maintain an upward trend. After briefly adjusting in line with precious metals, base industrial metals have returned to pricing based on their own supply and demand. Supported by the genuine demand from long-suppressed downstream physical buying, base industrial metals maintain a positive trend. Additionally, the U.S. initiation of a critical mineral reserve plan highlights the importance of mineral resources, driving an increase in the valuation of resource-related assets.
This week, precious metals once again experienced significant volatility. The main Shanghai silver contract price plunged from 32,000 yuan/kg to a low of 17,900 yuan/kg. Although the implied volatility of the Shanghai Silver Index has declined somewhat, it remains at a high level. The market is gradually digesting the panic over Kevin Warsh’s nomination as Fed Chair. After all, given the current situation of high U.S. debt, the feasibility of “interest rate cuts” + “balance sheet reduction” is debatable.
On February 5th, the latest report from the World Gold Council pointed out that global physical gold ETF inflows reached $18.7 billion in January 2026, setting a new single-month historical record. Global ETF total holdings increased by 120 tons to 4,145 tons, also reaching a record high. Regarding central bank gold purchases, 2025 saw purchases of slightly over 860 tons of gold, lower than the astonishing pace of over 1,000 tons per year in the three years prior to 2025, but the buying speed remains high. As of the end of January 2026, China’s gold reserves were 74.19 million ounces, an increase of 40,000 ounces compared to the end of December last year, marking the 15th consecutive month of increases.
From a medium to long-term perspective, high global debt and fiscal constraints exacerbate sovereign credit risks. The uncertainty of geopolitical friction and the evolution of the trend towards diversification of the international monetary system all lay the foundation for a positive outlook on precious metals prices. In the short term, precious metals are fluctuating at high levels to release and digest volatility, which does not change their upward trend.
Newly released data shows the Consumer Confidence Index fell sharply by 9.7 to 84.5 in January, far below the market expectation of 91. November trade data returned to normal, but the overall trade deficit still expanded significantly. Capital goods imports grew by 7.9%, led by computers and semiconductors, reflecting continued strong AI-related investment. December PPI rose 0.5% month-on-month, higher than the expected 0.2%, indicating that businesses are passing tariff costs downstream, and inflationary pressures persist. The U.S. January ISM Manufacturing Index rebounded sharply to 52.6, the highest since February 2022, significantly above the expected 48.5. The core drivers were simultaneous improvements in new orders and output. Although the employment component hit a one-year high, it remained in contraction territory, indicating demand recovery is faster than employment expansion. The rise in the price index points to a resurgence of cost pressures.
Meanwhile, affected by a partial federal government shutdown, the U.S. Bureau of Labor Statistics confirmed the delay in releasing the January non-farm payrolls report, weakening the availability of “hard data” on employment in the short term. The U.S. January ADP private employment data fell short of expectations, adding only 22,000 jobs, far below estimates, casting a shadow over the labor market. The Institute for Supply Management (ISM) report showed the U.S. January Non-Manufacturing PMI held steady at 53.8, while input costs rose, raising market concerns about a potential rebound in service sector inflation. These subtle changes in economic data have temporarily provided support for the U.S. dollar, creating a “ceiling” effect on gold.
Russia attacked Ukrainian energy facilities on the eve of a new round of peace talks, paralyzing heating systems in multiple cities including Kyiv. This not only violated the U.S.-supported energy ceasefire agreement but also set a record for the number of ballistic missile launches. Ukrainian President Zelenskyy accused Russia of using the ceasefire to stockpile ammunition and called for a response from the Trump administration. A White House spokesperson said Trump was not surprised by this. This tension is amplified during the harsh winter, raising concerns in global energy markets and further boosting safe-haven sentiment. On the other hand, the U.S. reaching a trade agreement with India and restarting nuclear talks with Iran have eased some geopolitical risks, but the suddenness of the Ukraine event still dominates market sentiment.
Industrial metals had relatively limited gains during this round of precious metals rally, with a smaller upward slope and lower crowding compared to precious metals. When the precious metals tide receded, the correction in industrial metals was much smaller than that in precious metals. After the noise subsided, they returned to their own fundamentals. This week’s movement in industrial metals fully confirms the above assertion. Copper retested the key support level of 100,000 yuan/ton, digesting volatility and waiting for downstream players who were squeezed out to replenish inventories. This timing is most likely to occur after the Chinese New Year, as downstream sectors generally enter a holiday state before the festival. Global copper inventories rose to 1.11 million tons, of which 589,000 tons are locked in the COMEX market.
Aluminum prices found support at the 23,500 yuan/ton level. Even though inventory accumulation has begun, global inventories remain at historically low levels, while aluminum smelting operating rates are high with almost no supply adjustment capacity. Prices are expected to hit new highs after downstream players return. Tin’s volatility and adjustment magnitude were second only to silver. The substantial adjustment also stimulated downstream purchasing. Global tin inventories dropped from 17,600 tons to 15,800 tons. In the long term, supply is concentrated and fragile, while the explosion in semiconductor demand corresponding to computing power expansion drives tin consumption demand, keeping tin prices on an upward trend.
1. A severe global economic recession leading to a cliff-like decline in consumption. The World Bank, in its latest “Global Economic Prospects” report, lowered its 2025 global economic growth forecast from 2.7% in January this year to 2.3%, with growth forecasts for nearly 70% of economies being downgraded. The World Bank stated that global economic growth is slowing due to trade barriers and an uncertain global policy environment. Compared to six months ago when the economy seemed headed for a “soft landing,” the global economy is now in turmoil again. If the course is not corrected quickly, living standards could be severely harmed. Global economic data is already showing a downward trend. If a deep recession occurs, the impact on non-ferrous metals consumption would be significant.
2. U.S. inflation spirals out of control, the Fed tightens monetary policy beyond expectations, and a strong U.S. dollar suppresses asset prices. The U.S. fails to effectively control inflation, leading to continuous interest rate hikes. The Fed has already conducted significant consecutive rate hikes, but services, particularly rents and wages, appear sticky, constraining the decline in inflation. If the Fed maintains high-intensity rate hikes, it would be unfavorable for U.S. dollar-denominated non-ferrous metals.
3. Domestic new energy sector consumption growth falls short of expectations, and the real estate sector consumption remains persistently weak. Although policies on the real estate sales side have been relaxed to varying degrees, residents’ willingness to purchase is insufficient, and progress in resolving real estate companies’ debt risks is not smooth. If sales continue to show no improvement, the real estate completion phase will face a risk of deceleration later, which would be unfavorable for domestic consumption of some non-ferrous metals.
