Crazy precious metals! Gold and silver shine together, platinum and palladium soar side by side—a major short-term risk is "right before our eyes."
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The precious metals market is closing out 2025 with a frenzy not seen in decades, but behind this feast fuelled by expectations of monetary easing and geopolitical risks, a major foreseeable risk is quietly approaching.
On Tuesday, December 23, market sentiment reached a boiling point. In the Chinese market, the main platinum and palladium contracts on the Guangzhou Futures Exchange both hit the 10% daily limit, setting new highs since their listing. Their gains have since slightly retraced.
Meanwhile, driven by expectations of further Federal Reserve rate cuts in 2026 and heightened geopolitical tensions near Venezuela, spot gold prices rose another 0.7% today, at one point hitting a historic high of $4,486 per ounce—marking the 50th time this year it has set a record high. Silver surged 3.5% to $69.46 per ounce yesterday, but its rally paused today, with prices remaining elevated.
However, beneath the revelry, risks are accumulating. JPMorgan warned in its latest research report that after gold and silver prices have far outperformed the market for three consecutive years, their weightings in the Bloomberg Commodity Index (BCOM) have become severely excessive. This virtually guarantees that during the imminent index rebalancing in January 2026, passive funds tracking the index will be forced into large-scale "technical selling."
For the market, this means a fierce battle between bullish and bearish factors is about to unfold. On one side are record prices, strong upward momentum, and traditional seasonal gains at the start of the year; on the other is a foreseeable, massive wave of forced selling. This near-term risk is "right around the corner" and may bring drastic volatility to the surging precious metals market as soon as the new year begins.
Precious Metals Surge Across the Board, Posting Decades-High Gains
As we enter "Christmas week," the precious metals market is rallying across the board, with multiple commodities heading for their strongest annual performance since 1979.
According to data released by BullionVault on Monday, the annual gains in gold and silver prices are the highest in 46 years. With only a few trading days left in the year, gold has risen nearly 70%, and silver has soared nearly 140%.
Platinum-group metals have also performed spectacularly: platinum surged 5.1% on Monday to $2,075 per ounce, a 16-year high, with annual gains close to 130%—the biggest yearly increase since London benchmarks began in 1990; palladium rose as much as 4.6% to $1,802 per ounce, its highest in nearly 4 years, with yearly gains expected to exceed 95%.
Macroeconomic factors behind this rally include a weakening US dollar and market expectations of two Fed rate cuts in 2026 (though Fed officials predict only one). Additionally, US military actions off the Venezuelan coast have added geopolitical risk premiums.
It's noteworthy that, per US CFTC data as of December 9, net long positions held by hedge funds and other speculators in Comex gold and silver futures and options have remained relatively modest and have not fully matched the rapid price gains in this round.
Chinese Funds Fuel Platinum Frenzy
Behind platinum's spectacular rally, trading activity from China has played a boosting role. According to JPMorgan's report on December 18, the jump in platinum prices from the $1,700 range to above $1,900 per ounce is mainly driven by "robust" futures trading activity and surging open interest at the Guangzhou Futures Exchange (GFEX).
Data shows that since GFEX launched platinum and palladium futures contracts on November 27, the daily average total turnover of platinum contracts has increased to nearly 5 million ounces, even surpassing volumes on NYMEX recently. Meanwhile, total open interest on GFEX soared to over 1 million ounces, about a quarter of NYMEX's level.
To curb overheating trades, GFEX announced on December 18 that platinum and palladium contract position limits for non-futures company members or clients would be set at 500 lots.
Silver's "Double-Edged Sword": High Prices Erode Solar Demand
For silver, which has seen the most astonishing surge this year, its fierce rally has become a double-edged sword, with increasing risks of long-term demand destruction—especially in photovoltaics.
JPMorgan's analyst team led by Gregory C. Shearer believes silver's near-130% annual gain has pushed its cost share in total solar module prices from typically below 5% before 2024 to nearly 20%. This severely squeezes solar module makers' already "thin" profit margins. The high costs are accelerating industry adoption of "silver thrift" technologies, which reduce silver usage.
The report estimates that with the spread of silver-plated copper paste and zero-busbar (0BB) thrift technologies, as many as 50-60 million ounces of silver demand could be threatened in the coming years. Although for now, physical market tightness caused by uncertainty over the US "Section 232" tariffs is masking this long-term risk, if market tightness eases, demand destruction could trigger a "more abrupt reversal" in silver's outperformance versus gold.
Technical Storm Ahead: January Index Rebalancing May Trigger Concentrated Gold and Silver Selling
For precious metal investors, the most direct short-term risk comes from the upcoming annual rebalancing of major commodity indices.
Wallstreetcn reports that according to JPMorgan's warning in its December report, the closely watched Bloomberg Commodity Index (BCOM) will begin its annual weighting adjustment on January 8, 2026. After three years of stellar performance, gold and silver's weights have far exceeded target levels.
Thus, passive funds tracking this index (with a total AUM exceeding $60 billion) will be forced to concentrate their selling of gold and silver futures between January 8 and 14 to complete the rebalancing.
The report offers clear predictions for the scale of selling:
- Silver: Expected to face the heaviest selling pressure, with sales accounting for about 9% of total open interest in its futures market. The report emphasizes that this year's silver selling pressure will be "even more pronounced than last year's."
- Gold: Expected to face selling equal to about 3% of its total open interest.
This foreseeable technical selling will directly offset gold's traditional early-year seasonal strength (eight out of the past ten years saw gains at the start of the year). Investors need to stay highly alert as this wave of strong fund outflows may break historical patterns and trigger market turmoil in the first week of the new year.
Risk Warning and DisclaimerMarkets involve risk, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account individual users' specific investment objectives, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their circumstances. Investing based on this information is at one's own risk. ```