Conviction Buying, Second Waves and a 37% Rally in Gold

Precious metal markets have started the new financial year on an uncertain footing, with gold and silver moving higher in the first few trading days—off the back of weak U.S. payrolls report—before once again pulling back. Gold was last trading at USD $4,079 per troy ounce (oz), while silver is sitting just above $58oz. 

Conflict between the United States and Iran is again the key event risk driving markets, the short-lived peace deal between the two nations seemingly in the past. On Wednesday, President Donald Trump said the U.S.’ ceasefire with Iran was “over”, describing peace talks with the Iranian government as a “waste of time” amid ongoing attacks on ships in the Strait of Hormuz and counter attacks by the U.S. in the Persian Gulf. 

As has been the case for many months, flare ups in this conflict are being treated by the market as gold bearish—with oil spiking—while yields on bonds also moved higher. The U.S. 10-year government bond yield is heading back above 4.50%, now up 0.20% since late June and closer to 0.60% (or close to 15%) since late February. 

While this price action is no doubt causing concern for some precious metal investors, the outlook remains positive—especially after the significant price correction we have seen, which has cleansed the precious metal market of all the speculative froth that had built into the January price peak. 

Physical market infrastructure continues to develop, recently headlined by the long-awaited development of a gold clearing and settlement system in Hong Kong. A raft of big names in the precious metals industry, from banks to wholesalers, have indicated their eagerness to participate. HSBC also announced its intentions to expand its physical gold storage capabilities to 200 tonnes, a reflection of the expected growth in demand throughout the region. 

H1 ETF flows were also positive on a global scale, though it was a case of Asia buying (+70 tonnes) and North America selling (-60 tonnes), with the outflows from North American products coinciding with the price correction in gold. Additionally, the surge in demand for anything AI or tech-stock related was of course headlined by the SpaceX IPO which took place in early June.  

Reward for Conviction Investing and Catching the Second Wave 

That gold has weathered these storms—and still held its UDS $4,000oz price point—is instructive, with this corrective time-period now running for more than five months. On average, corrections typically last just under 7 months, withgold now entering a seasonally strong window for price performance. 

This does not mean that gold (or silver) can’t fall further, but it does suggest that the worst of the price falls are behind us, with gold’s current correction seeing the metal down by just over 25% from the January high (the correction was closer to 30% in late June when gold temporarily dipped below the USD $4,000oz). 

That puts the current price correction in line with—or indeed in excess of—all major pullbacks seen in the past 25 years for gold. This is of course with the exception of the 2011-2015 cyclical bear market, something we don’t expect to see repeated given today's vastly different economic, market and geopolitical climate, compared to that of the corrective period which commenced 15 years ago.  

Indeed, it is worth reflecting on the fact that should history repeat, and gold goes on to get back to its prior high above USD $5,500oz by January 2028 (this 18-month projection based on previous peak to peak recovery periods), then investors who buy today will generate a total return of 37%, or 23% per annum. If silver is dragged along for the ride, investors buying today will have doubled their money in that time frame. 

There are very few assets that offer the kind of bounce back potential that precious metals do, let alone the gains that stand to be generated as gold pushes beyond its prior peak, something it has done time and time again in this long-term bull market.  

Of course, in order to participate in a rally of such magnitude, one must be willing and one must have the conviction to buy now. In an environment where the headlines are lukewarm or even bearish, the short-term price action is difficult to have confidence in, and other markets appear more enticing.  

It will of course be easier to wait until headlines are more bullish, until the macro picture is clearer, and indeed until the price itself is clearly trending in an upward direction. But waiting for those indicators would mean an investor wouldn't be buying near the bottom of a corrective cycle—and, importantly, will give up part of the gains the next leg higher will offer. 

It is also worth noting that the percentage gains on offer are the same in a trough to previous peak (or second wave recovery) as they were in the original run up to the price peak. By that, we mean an investor who bought gold near USD $4,100oz was up over 35% by the time gold peaked in January 2026. 

An investor who buys gold today will be up the same amount once the market reclaims that level, even if the move back to that prior high doesn’t get quite the same amount of media attention or generate the same amount of investor euphoria as the original move.  

The bottom line? Short-term price moves are impossible to predict, but on balance it appears clear that gold and silver now have a medium and long-term risk/reward profile that is much stronger for those looking to buy precious metals today, compared to those looking to short or even just avoid the market. 

Until next time,

Jordan Eliseo
General Manager, ABC Bullion

Luke Tyler
Senior Analyst, ABC Bullion

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