Key takeaways

• Gold and silver are undergoing a long-overdue correction, triggered by a post-Diwali slowdown in physical demand from key Asian buyers.
• Silver’s deeper correction relative to gold once again highlights the liquidity gap between the two markets - silver’s liquidity is roughly nine times lower - amplifying both rallies and selloffs.
• The structural drivers behind this year’s historic rallies remain intact, leaving metals that are no longer overbought but still under-owned in portfolios well supported longer term.

The risk of correction in gold and silver has been steadily rising in recent days, though exceptionally strong pre-Diwali demand helped support prices. However, a very technical extended rally combined with renewed “risk-on” tone across stock markets, a firmer dollar and not least the start of Diwali - which typically signals softer physical demand from Asia - have made traders increasingly cautious, more focused on protecting gains than chasing new highs.

While the actual trigger was for the dramatic percentage correction on Monday and into the early hours in Asia is unclear but three consecutive and unsuccessful attempts in gold to break above US$4,380 probably helped change the mindset from looking for more gains to protect those that had already been achieved.

What followed was a classic rush towards an exit too narrow to cope with the sudden burst of selling from technical focused leveraged traders and recent buyers finding themselves underwater. The latest price action once again underlined the importance of liquidity differences between gold and silver, with the latter seeing liquidity that is roughly nine times lower than golds. These disparities magnify both rallies and corrections: a surge in buying quickly runs into limited supply, and any shift toward profit-taking produces outsized percentage moves.

Gold and silver bounced during the Asian session after briefly extending Tuesday’s selloff, the steepest in years. The forceful correction shows how one-sided the focus had become leading to a natural reset after a powerful nine-week rally that saw gold gain 31% and silver 45%. As mentioned, beyond the firmer dollar, the main catalyst was softer Indian demand in the aftermath of Diwali. Silver meanwhile rebounded from the USD 47.80 area of support, with gold buyers emerging just above US$4000. Both metals needed a correction to prevent the rally from morphing into a bubble that might later burst even more violently.

In silver, market focus has now shifted to the pending U.S. Section 232 investigation into imports of critical minerals, including silver, platinum, and palladium - a decision that could reshape short-term supply chains and price dynamics across the Atlantic.

A no-tariff outcome would ease London’s tightness by allowing more U.S.-held metal to flow to Europe, narrowing the recent London-over-COMEX premium that reached pandemic-era extremes and pushing one-month lease rates back toward normal.

By contrast, tariffs would have the opposite effect. Metal already in the United States would become semi-stranded, intensifying scarcity in London and driving COMEX premiums higher. Under that scenario, silver could swiftly retest - and potentially exceed - recent highs, propelled by renewed squeeze dynamics rather than genuine demand growth.

Finally, we maintain a bullish outlook for gold and silver into 2026, and following a much-needed correction/consolidation traders will likely pause for thought before concluding the developments that drove the historic rallies this year has not gone away, and will likely continue to offer support to metals that are no longer overbought but remains under owned in portfolios. In the short-term the Trump-Xi, and Trump-Putin meetings – if they are carried out - are key risk events that may help determine the duration of the current setback.

About the author

Ole Hansen joined Saxo in 2008 and has been Head of Commodity Strategy since 2010. Ole focuses on delivering strategies and analyses of the global commodity markets defined by fundamentals, market sentiments and technical developments.

RELATED: Harmony Gold secures US$1.01 billion move into copper