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Concerns regarding future inflation are back. Nervousness about future economic growth, a possible recession, is back. While current economic data still are healthy there are growing concerns around the world about what the future holds. Periods of higher inflation and the run up into a recession often are the best economic environments for rising precious metals prices, gold and silver in particular.
The positive impact on gold and silver prices of these financial market concerns already is being reflected in gold prices, which are at record high levels, and silver prices too, which have risen at a strong pace.
As mentioned before, current economic conditions are relatively healthy, but there are increasing signs of potentially steep declines in economic activity – a recession – as well as risks to steep declines in stock and bond prices and rising inflation. Investors are nervous about how long the current relatively good conditions will be sustained and are therefore often seen adding portfolio hedges like gold and silver to their portfolio. Investors adding to or building their gold and silver positions during the good times leading up to a recession is not uncommon. It has been seen in 1979, 2002 – 2008, 2019, and other economic cycles.
How gold will perform during a future recession is somewhat less clear, with investors sometimes buying more gold but at other times selling gold to offset losses in other parts of their portfolio or buying less gold due to the financial strains of the recession.
One of the primary factors affecting markets at this time is concerns about inflation rising and higher inflation’s potential negative impact on economic growth. Unease regarding inflation has risen to a large extent due to the uncertainty around trade tariffs that the United States government has said it will impose on its various trading partners, the new administrations’ stricter immigration policy, a 100 basis points reduction in the federal funds rate last year, and current inflation data that is struggling to decline toward the Fed’s desired target rate of 2% .
The two-year break-even inflation rate stood at 3.17% at the time of writing this report, in the last week of February, the highest level since March 2023. Break-even inflation is the difference between the nominal yield on a fixed-rate investment and the real yield on an inflation-linked investment of similar maturity (in this case two years) and credit quality. The break-even inflation rate is a predictive measurement that helps investors gauge the expectations of the future levels of inflation from current bond yields.
The Trump administration has imposed a 25% tariff on steel and aluminum, 10% tariff on imports from China, and plans to impose an additional 10% in tariffs on China and potential 25% tariffs on Mexico and Canada during the first week of March. Additionally, the administration is reviewing tariffs on other trading partners in Asia and Europe.
The stated goals of these Trump administration tariffs on many of its major trading partners include controlling illegal immigration, stopping the flow of fentanyl, stopping unfair trade practices, and bringing home manufacturing and jobs. At least in the case of manufacturing and jobs, there are data that show that the imposition of trade tariffs during Trump’s first presidency coincided with declining U.S. factory orders as well as manufacturing jobs. Since such declines in real economic activity have been experienced when tariffs have been imposed in the United States and elsewhere throughout the past two centuries, similar economic contractions can be expected this time around as well.
How effective tariffs might be in controlling illegal immigration and the flow of fentanyl is considered dubious at best. Most fentanyl smuggled into the U.S. is brought in by U.S. citizens, arrests indicate. Furthermore, tariffs most likely would be ineffective with regards to these two stated objectives since the inflow of these people and goods lie outside the legal systems in the countries Trump is targeting.
Trump is also aware that the trade tariffs that he is imposing will come with negative economic consequences within the United States but is still pushing forward with them, with the hope that fulfilling his campaign promises will politically outweigh the economic pains U.S. consumers are likely to face. This is a very big gamble that seems unlikely to succeed, given evidence culled from past tariff and trade wars. Furthermore, the promise of reducing inflation was one of the most important factors that helped Trump win the 2024 election. Tariffs will be inflationary.
The tariffs may help U.S. manufacturers of steel and aluminum but are raising costs for users of these products. The net impact of these tariffs could be negative for the U.S. economy by way of raising costs to consumers who account for 70% of U.S. gross domestic product.
While the rate of inflation growth has come down in previous months, the cost of goods and services today are significantly higher than they were prior to covid. This has been a major pain point for U.S. consumers. A revival in inflation due to higher tariffs could precipitate an economic slowdown.
A combination of tariffs and higher borrowing costs could weigh on consumption and act as a headwind to economic growth. Tariffs also will reduce overall economic activity and will divert private sector money to government tariff payments that otherwise might have been put to productive economic investments in business equipment, inventories, and hiring more employees.
The negative consequences for overall economic growth due to the imposition of tariffs will combine with the negative effects on economic activity of other early Trump initiatives. Slashing government employment reduces taxes paid by government employees and increases unemployment insurance payments by the government. A one trillion-dollar reduction in U.S. government spending could reduce total U.S. real economic activity by 4% – 5%, a deep recessionary consequence. Adding to that the cancellation of various government infrastructure and other programs, the contractionary forces on the total U.S., and global, economies would be significant.
Tariffs and some other programs clearly would increase inflation and reduce real economic growth. The effects on fiscal policies and monetary policies are less clear.
Early indications are that these policies would increase the size of the federal deficit for several years, due to reduced tax receipts, higher unemployment insurance payouts, and other factors. The nonpartisan Congressional Budget Office has estimated that the proposed Trump policies could increase annual federal deficits by more than one trillion dollars per year over the next four years, boosting the federal debt outstanding by a similarly sized accelerated amount.
The Fed’s options also are likely to be limited if an economic downturn is accompanied by strong inflation.
The Fed at its most recent meeting said that it was in no rush to lower interest rates. Its last projections for interest rates, released in December, suggested a 50-basis point (bps) reduction in the federal fund interest rates for 2025. Its next projections will be released in March, and the jury is out on what those projections could look like. Some market participants are expecting the Fed to continue projecting a 50-bps reduction, while others are expecting a decrease in the number of reductions or even no reductions.
Markets In Summary
Gold prices rose to fresh record highs during February 2025. A combination of fundamental factors, seasonal strength in gold prices, and momentum should help keep gold prices near these record high levels in the near term, with the potential for gold prices to rise to fresh record highs. That said, gold prices have risen swiftly to unprecedented levels, which could result in short-term pullbacks. Prices could test $3,000 or even $3,100 over the course of this year, however a pullback in gold prices to $2,750 on their journey to these higher levels cannot be ruled out. While a decline to $2,750 is sharp, it was a level at which gold prices stood at the end of January 2024 and is higher than previous gold prices.
As mentioned in previous editions of this report, the primary factor supporting gold prices at this time is an elevated level of both political as well as economic uncertainty. The Trump administration is moving briskly on various campaign promises using approaches, like imposing tariffs on its major trading partners or slashing large swaths of government jobs, that could have a net negative economic consequence for both the U.S. as well as the global economy.
Another factor that has helped gold prices in recent weeks has been concerns in the market about trade tariffs being imposed on gold imported into the United States, which has resulted in an increase in demand for gold to be bought to the United States before any such potential tariffs are imposed. This drove New York gold prices to a premium to London prices and has consequently resulted in gold being diverted out of London vaults to vaults in New York. This trade could continue until there remains uncertainty regarding possible tariffs on gold being imported into the United States.
Central Banks
Central banks were net buyers of gold during 2024, however, their net purchases during the year were the lowest since 2020. These entities are known to be price sensitive, which made it unsurprising to see net purchases soften during the year. Central banks added 8.4 million ounces of gold to their holdings in 2024 compared to 8.2 million ounces in net additions during 2020. Net additions during 2024 were down from 13.9 million ounces in 2023. While central banks are sensitive to prices, they have been buying at higher gold prices but have tended to pull back on their purchases when gold prices rise too sharply and too quickly as was the case in 2024.
There is another factor that is reflected in the lower central bank additions to monetary reserves last year. Central banks think in terms of dollars, of currencies. They have a diverse set of currencies and gold in their monetary reserves (along with IMF Special Drawing Rights and Reserve Positions in the IMF). They value their reserves in U.S. dollars, for standardization purposes, as well as in their own domestic currencies. They tend to think about what percentage of their total monetary reserves they wish to have in dollars, euros, other currencies, and gold. They think about gold in dollar terms, and as a percentage of their total monetary reserves. They do not necessarily think about gold in ounces, about how many ounces of gold they should want to have. With gold prices sharply higher in 2024 than in previous years, central banks bought fewer ounces of gold even as the dollar value of their gold acquisitions was not as sharply lower than in 2023.
Additionally, central banks were focused on monetary policies in the face of weaker domestic economic conditions and higher inflation in 2024, as well as declining currency exchange rates. These issues took precedence over gold policies.
Total reported gross purchases during 2024 stood at 10.5 million ounces. The three largest buyers of gold during 2024 were the central banks of Poland, India, and China, which added 2.88 million ounces, 2.33 million ounces, and 1.41 million ounces, respectively. A total of 21 central banks added gold to their holdings in 2024. Of those the top three central banks accounted for around 63% of the total purchases made during the year.
There was a total of 12 central banks that were sellers of gold in 2024. These banks collectively reduced their holdings by 2.15 million ounces last year. The three largest sellers of gold last year were the central banks of the Philippines, Kazakhstan, and Thailand, which reduced their holdings by 946,000 ounces, 327,000 ounces, and 310,000 ounces, respectively.
Reported central bank gold activity showed central banks to be net sellers of 723,000 ounces of gold during January 2025. This can be solely attributed to net selling by the Russian central bank, which reduced its holdings by 1.56 million ounces during the month. The Russian central bank has been buying and selling gold on a monthly basis, raising the volatility in monthly central bank activity. The central bank has been buying its gold from domestic producers and sells it to finance the government and the country’s war with Ukraine. It is very likely to have been a net buyer of gold during February 2025.
Excluding Russia, central banks were net buyers of 842,000 ounces of gold during January 2025. The largest purchase was made by the central bank of Uzbekistan, which added 260,000 ounces of gold to its holdings during the month. Many of the net buyers of 2024 continued to add gold to their holdings during January 2025, with China, Poland, and India adding 170,000 ounces, 100,000 ounces, and 90,000 ounces, respectively. The one exception on the list was the central bank of Kazakhstan, which was a net seller during 2024 but showed up as a net buyer of gold during January 2025, adding 123,000 ounces of gold to its holdings.
While central banks are sensitive to high prices, they are even more sensitive to sharply rising prices. The sharp gains in gold prices during February 2025 may have slowed central bank purchases. Gold prices are expected to remain high during 2025 but are not expected to rise in the same way as was seen in 2024. Central banks may not be averse to buying gold in such a price environment. Gold prices have been at historically elevated levels since 2020, but central banks still added 10.1 million ounces, 11 million ounces, and 13.9 million ounces of gold to their holdings, between 2021 and 2023, respectively. The median annual net purchases by central banks between 2008 and 2024 were 11 million ounces. Based on the buying patterns between 2021 and 2023, it is possible that central banks add around 10 million ounces of gold on a net basis, during 2025.
Silver prices have been steadily rising in the first two months of 2025. All of the factors, fundamental and seasonal, that have been supportive of gold prices have been supportive of silver prices too.
The silver price has also been supported by incorrect fears about the London market running out of silver. As with gold, silver has been moving to New York due to the international arbitrage in silver prices. Since silver travels by sea, versus gold which travels by airplane, there has been some short-term tightness in the physical markets, which is providing additional support to silver prices.
The one factor that continues to act as a headwind to silver prices has been selling by investors who have been holding the metal for a long time. Such selling has been ongoing for some time now, which helps explain silver’s relative lackluster performance versus gold. Some of these investors are taking profits on higher prices. Other investors purchased silver with lofty price targets that have not been realized in years, causing them to sell into the significantly higher prices of late 2023 and 2024. The intensity of this selling is expected to slow as the year progresses, clearing the way for silver prices to rise more forcefully.
Silver prices have the potential to rise to $35 in the coming months, but as with gold, silver prices are likely to see pullbacks from time to time on their way higher. There is healthy support for silver prices at the $31 level.
Platinum prices rose during the first six weeks of this year but have given back a lot of those gains during the second half of February. Strength in gold prices and a seasonally strong period for platinum prices should prevent any sharp declines in the near term, but the upside for platinum prices is expected to be limited too.
On the downside, platinum prices have strong support at the $940 level. Meanwhile on the upside, platinum prices could face difficulty breaking forcefully above $1,020 in the absence of an actual loss to total supply. Flooding at some South African mines due to heavy rains resulted in the suspension of activity, but mining companies put out statements that full year production targets would be met despite the flood related suspensions. This prevented any reason for platinum prices to rise.
As with most markets, tariffs are a concern for the platinum market too. Part of the issue with tariffs is businesses entering a wait and see mode with regards to making capital investments, which would hurt demand for commercial vehicles. Demand for commercial vehicles already had softened in major commercial vehicle markets over the course of 2024. The situation could worsen further during 2025. Additionally, depending on the extent of tariffs being imposed by the U.S. on various countries, these trade barriers could result in driving the cost of vehicles sold in the United States sharply higher, which could further dampen demand.
Over the course of February palladium prices gave back their January gains, with prices back to levels at the end of 2024. Palladium prices have been range bound over the past year, moving mostly between $880 and $1,100.
Prices are expected to remain in this range over the next few quarters, with the potential to break the downside of this range if global economic conditions weaken going forward. At this time, economic conditions are holding up well in the United States but have been soft in Europe and China. While Chinese auto sales are growing, much of that growth is driven by government incentives to purchase electric vehicles, which is not supportive of palladium fabrication demand.
U.S and European auto demand are presently more supportive of palladium fabrication demand. In the United States a slowing in the adoption of electric vehicles and the purchase of large light-duty trucks is a positive for palladium fabrication demand.
In Europe meanwhile there is a greater adoption of hybrids than electric vehicles, which also is supportive of palladium fabrication demand. That said, the demand growth in both these markets has been somewhat lackluster, with U.S. passenger vehicle demand growing 2.5% in 2024 and European passenger vehicle demand growing 0.9% last year. Depending on how trade tariffs play out over the course of this year, it could have consequences for both economic growth as well as the prices paid by consumers for vehicles.
What strategy is used by the Trump administration to end the Russia-Ukraine war also will play an important role in influencing market perceptions of Russian palladium supply disruptions. If the U.S. needs to use pressure tactics on Russia to end the war, it will drive up expectations of supply disruptions and drive up the price of palladium. There have been several episodes over the past three years when palladium prices shot up on concerns that sanctions imposed by the West on Russia would result in disruptions to palladium supply. None of these expectations materialized and palladium prices would fall shortly after.
If the war ends this year, it could also add further downside pressure on palladium adding to the possible downside pressure on palladium due to potential weakness in global economic growth.
The weakness in palladium prices does have some producers considering shuttering of their operations. A recent example is Impala Platinum, which is considering the early closure of its Canadian Lac Des Ille mine due to the drop in palladium prices. If such closures materialize, it could help to provide support to palladium prices.
After a volatile first half of 2026, CPM Group examines the outlook for gold, silver, platinum, and palladium—and why precious metals remain important portfolio anchors in a shifting economic and political landscape.
The below report was created for Monex Precious Metals. We would like to thank Monex for making this CPM Group report available free of charge.
The below report was created for Monex Precious Metals. We would like to thank Monex for making this CPM Group report available free of charge.