Central banks drive unprecedented demand amid policy uncertainty

Central bank gold purchases totaled 244 tonnes in Q1 and 166 tonnes in Q2 2025, maintaining the structural support that has underpinned the precious metals rally. Poland emerged as the leading global buyer, adding 67 tonnes through May as it targets increasing gold to 20% of total reserves by 2026. China resumed purchases after a six-month pause, though actual acquisitions likely exceed reported amounts by 2-3 times through off-market transactions. The World Gold Council notes that only 22% of central bank demand was officially reported in Q1, suggesting widespread undisclosed accumulation.

The Federal Reserve's July 29-30 meeting revealed deepening divisions, with the first double dissent since 1993 as Michelle Bowman and Christopher Waller voted for a 0.25% rate cut against the majority's decision to hold at 4.25-4.50%. Chair Powell acknowledged economic growth has slowed to 1.2% in H1 2025 from 2.5% last year, while inflation remains elevated with CPI at 2.7% and core PCE at 2.8%. The Fed's uncertainty about tariff impacts and their potential inflationary effects has created a policy dilemma that benefits precious metals as safe-haven assets. Markets are pricing in approximately 44 basis points of cuts by year-end, with the critical July CPI data release on August 12 likely determining the September FOMC decision.

The latest World Gold Council survey reveals 43% of central banks anticipate increasing their gold holdings over the next 12 months, up from 29% in 2024, while 95% believe global official gold reserves will continue rising. India quadrupled its 2024 gold purchases to 73 tonnes, bringing total reserves to 880 tonnes. Turkey added 75 tonnes in 2024 and continues accumulating in 2025. Even smaller central banks like Kazakhstan and Uzbekistan are aggressively adding to reserves, with Uzbekistan now holding 82% of its reserves in gold.

Technical breakouts signal further upside potential

Gold's technical position shows consolidation after reaching an all-time high of $3,499.88 in April, currently trading above its 200-day moving average of $3,001 but facing resistance at the 50-day MA of $3,344. The metal has formed a symmetrical triangle pattern with key support at $3,300-$3,310 and major resistance at the psychological $3,500 level. Technical indicators remain mixed with RSI at 48.17 in neutral territory, suggesting the correction phase may be nearing completion.

Silver presents a more bullish technical setup, having broken out of a bull flag pattern in mid-July with strong momentum indicators including an RSI of 61.95 and ADX of 30.42 signaling trend strength. The gold-silver ratio at 90-92:1 remains 40% above its 25-year average of 66:1, suggesting silver remains undervalued relative to gold. Technical targets for silver point to $41-42 in the near term, with some analysts projecting $49 by late September based on historical analogs. The metal's industrial demand profile, particularly from solar panels consuming 232 million ounces annually, provides fundamental support for the technical breakout.

Mining stocks dramatically outperform metals

The mining sector has delivered exceptional returns with the VanEck Gold Miners ETF (GDX) surging 54.67% year-to-date, more than doubling gold's price performance. Junior miners (GDXJ) gained 25.9% while individual companies posted even stronger results. Newmont reported record quarterly free cash flow of $1.7 billion in Q2 despite industry-wide cost pressures that pushed average all-in sustaining costs to $1,456 per ounce.

Silver miners demonstrated similar outperformance with Pan American Silver up 41.8% YTD and announcing a $2.1 billion acquisition of MAG Silver to secure a 44% stake in the high-grade Juanicipio project. The sector benefits from operational leverage where a 10% increase in metal prices can translate to 20-30% gains in mining profits. M&A activity reached $25 billion globally through April 2025 as companies consolidate to achieve scale and cost efficiencies. Despite inflationary pressures increasing labor costs by 8.1% and energy expenses, 97% of primary gold production remained profitable, supporting continued strong cash flows and shareholder returns.

Mining equities are attracting renewed institutional interest, with UBS upgrading Newmont to "Buy" with a $60 target (20% upside) and maintaining Barrick's "Buy" rating at $25. The sector's operational leverage to metal prices positions it for 75% earnings growth in 2025. Options market positioning reinforces this bullish sentiment, with non-commercial long positions in gold futures representing 59.1% of open interest near record highs.

Physical markets confirm institutional accumulation

The physical precious metals market shows unprecedented strength with gold ETFs attracting $8.3 billion in net inflows year-to-date, including a single-day record of $775.9 million. Silver-backed ETPs saw 95 million ounces of net inflows in H1 2025. COMEX delivery activity reached extraordinary levels with March silver deliveries of 15,000+ contracts, well above historical norms, forcing the exchange to actively restock inventories.

The silver market faces its fifth consecutive annual supply deficit of 149 million ounces despite mine production reaching an 11-year high of 844 million ounces. Industrial demand hit a record 700+ million ounces, with solar panel usage alone accounting for 19% of total consumption. Electric vehicles require 25-50 grams of silver compared to 15 grams for traditional vehicles, adding approximately 600 metric tons of incremental demand as global EV sales approach 20 million units in 2025. Shanghai Gold Exchange premiums normalized to around $6 per troy ounce from peaks above $121 in 2023, though physical withdrawals declined from 271 tons in January 2024 to sub-90 ton levels, suggesting a shift from Eastern to Western accumulation.

The week ahead presents critical catalysts

The coming week features several crucial economic releases that could significantly impact precious metals markets. Tuesday's trade balance data will provide insights into dollar dynamics, while Thursday's jobless claims could influence Fed policy expectations. Most importantly, the July CPI release on August 12 represents a critical catalyst that could determine whether the Fed begins cutting rates in September.

Technical levels demand close attention as gold tests the critical $3,350-$3,400 resistance zone. A breakout above $3,400 would target $3,450 initially, with potential extension to JPMorgan's $3,675 year-end target. Silver's approach to the psychological $40 level represents an even more significant inflection point, with a weekly close above potentially triggering acceleration toward $42-44 based on the 13-year cup and handle pattern.

Multiple Federal Reserve officials are scheduled to speak throughout the week, including Fed Governor Michelle Bowman and Atlanta Fed President Raphael Bostic, providing crucial guidance following the contentious July FOMC meeting. Any shift in tone regarding September rate cut possibilities could catalyze significant moves in precious metals.

Conclusion

The precious metals market has entered a new paradigm characterized by structural supply deficits, unprecedented central bank demand, and an extreme positive correlation with equity markets reaching +0.927—the highest since 2005. While this correlation must eventually normalize, potentially causing dramatic divergence, the fundamental drivers remain exceptionally bullish. The convergence of persistent inflation above Fed targets, geopolitical tensions spanning 59 active global conflicts, and industrial demand growth from green energy transition creates multiple layers of support.

With major banks converging on significantly higher price targets and mining stocks demonstrating explosive operational leverage, the sector appears positioned for continued outperformance. The critical catalysts for the week ahead include Tuesday's trade balance data, Thursday's jobless claims, and most importantly, the July CPI release on August 12 that could determine whether the Fed begins cutting rates in September. Investors should prepare for increased volatility as traditional correlations normalize, but the structural bull case for precious metals remains intact with JPMorgan's extreme scenario of $6,000 gold by 2029 illustrating the potential magnitude of the ongoing monetary regime shift.

The persistence of inflation above target, coupled with eventual Fed easing, creates an environment where real rates may turn negative again, historically a powerful catalyst for precious metals. With physical demand exceeding supply, particularly in silver, and central banks maintaining their aggressive accumulation pace, the path of least resistance appears higher. In this environment, precious metals continue to fulfill their historic role as stores of value and portfolio insurance, with the added benefit of fundamental demand drivers that extend well beyond traditional safe-haven buying.