The precious metals market is closing out 2025 with a historic rally unseen in decades. However, behind this frenzy fueled by dovish expectations and geopolitical risks, a foreseeable major risk is quietly approaching.
On Tuesday, December 23, market sentiment reached a boiling point. In China, platinum and palladium futures contracts on the Guangzhou Futures Exchange (GFEX) both hit the 10% daily limit, reaching record highs since their listing. Gains have since moderated slightly.
Meanwhile, driven by expectations of further Fed rate cuts in 2026 and geopolitical tensions near Venezuela, spot gold rose another 0.7% today, hitting an all-time high of $4,486 per ounce—marking its 50th record this year. Silver surged 3.5% yesterday to $69.46 per ounce but paused its rally today, holding near highs.
Yet beneath the euphoria, risks are mounting. JPMorgan warned in a recent report that gold and silver’s three-year outperformance has left their weightings in the Bloomberg Commodity Index (BCOM) severely overweight. This virtually guarantees that passive funds tracking the index will be forced into large-scale "technical selling" during the upcoming January 2026 rebalancing.
For the market, this sets the stage for a fierce tug-of-war between bullish and bearish forces. On one side are record prices, strong momentum, and traditional seasonal strength at the start of the year. On the other is a predictable wave of forced selling. This short-term risk is "imminent" and could trigger sharp volatility in the red-hot precious metals market as early as the new year.
**Precious Metals Surge to Multi-Decade Highs** Entering the "Christmas week," precious metals are rallying across the board, with several commodities on track for their strongest annual performance since 1979.
According to BullionVault data released Monday, gold and silver are posting their biggest annual gains in 46 years. With just a few trading days left in the year, gold is up nearly 70%, while silver has skyrocketed almost 140%.
Platinum group metals have also delivered staggering returns: Platinum jumped 5.1% Monday to $2,075 per ounce, a 16-year high, bringing its yearly gain to nearly 130%—the largest since London benchmark pricing began in 1990. Palladium rose 4.6% to $1,802 per ounce, a four-year peak, with annual gains likely exceeding 95%.
Macro drivers include a weaker dollar and market expectations for two Fed rate cuts in 2026 (versus officials’ projection of one). Additionally, U.S. military activity near Venezuela has added geopolitical risk premiums.
Notably, CFTC data as of December 9 shows hedge funds’ net-long positions in Comex gold and silver futures and options remain relatively subdued, failing to fully match the price rally’s intensity.
**Chinese Funds Fuel Platinum Frenzy** Behind platinum’s explosive rally, Chinese trading activity has played a key role. JPMorgan noted in a December 18 report that platinum’s surge from $1,700 to above $1,900 per ounce was primarily driven by "robust" futures trading and surging open interest on GFEX.
Since GFEX launched platinum and palladium futures on November 27, platinum’s average daily trading volume has grown to nearly 5 million ounces, recently surpassing NYMEX’s volume. Meanwhile, GFEX’s total open interest has soared to over 1 million ounces—about a quarter of NYMEX’s.
To curb overheating, GFEX capped non-member/client positions for platinum and palladium contracts at 500 lots on December 18.
**Silver’s Double-Edged Sword: High Prices Erode Solar Demand** For silver—this year’s top performer—its blistering rally is becoming a double-edged sword, with long-term demand destruction risks emerging, particularly in photovoltaics (PV).
JPMorgan’s Gregory C. Shearer and team estimate silver’s 130% surge has pushed its cost share in solar module prices from below 5% pre-2024 to nearly 20%, squeezing manufacturers’ already-thin margins. High costs are accelerating "thrifting"—reducing silver usage via technology.
The report warns that if silver-thrifting tech (e.g., silver-coated copper paste and 0BB) accelerates, 50–60 million ounces of annual demand could be at risk. While near-term physical tightness (due to U.S. Section 232 tariff uncertainty) masks this threat, demand destruction could trigger a "sharper reversal" in silver’s outperformance versus gold once supply normalizes.
**Technical Storm Ahead: January Rebalancing May Trigger Gold & Silver Selloff** The most immediate risk for precious metals investors is the annual commodity index rebalancing.
JPMorgan’s December report warns the Bloomberg Commodity Index (BCOM) will rebalance weights starting January 8, 2026. Gold and silver’s three-year outperformance has left their index weightings far above targets, forcing passive funds (with over $60 billion AUM) to sell futures between January 8–14.
The report projects: - **Silver**: Facing the heaviest pressure, estimated selling could equal ~9% of total futures open interest—"more pronounced than last year." - **Gold**: Expected selling equals ~3% of open interest.
This predictable technical selling will clash with gold’s traditional seasonal strength (rising in 8 of the past 10 Januarys). Investors must watch whether this outflow breaks historical patterns, potentially sparking turbulence in the new year’s first week.
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