Gold and Silver Hit New Highs, Who Is Driving? Geopolitical Conflict and Rate Cut Expectations as Dual Drivers

TradingKey - With escalating global geopolitical tensions, a weakening US dollar, and rising market expectations for future rate cuts, gold and silver have surged recently, both hitting fresh all-time highs.

Spot gold prices surged more than 2% on Monday, climbing above $4,600 per ounce for the first time, with a cumulative gain of $280 since the beginning of the year. Spot silver outperformed significantly, jumping over 5% to break the $83 per ounce mark and setting a new record high.

Behind this rapid ascent in precious metals prices is the accumulation of multiple risk factors, including rising hedging sentiment in international markets, weak US macro data, a shift in Federal Reserve monetary policy expectations, and fiscal and political uncertainties.

Geopolitical Risks Drive Surge in Safe-Haven Demand

Recent reports indicate that the US is actively assessing various intervention methods against Iran. According to officials familiar with the matter, President Trump is weighing a range of options, including deploying additional aircraft carrier strike groups to the Middle East, as well as launching cyber offensives and information warfare.

The US government has recently held several rounds of closed-door meetings to discuss ways to support anti-government forces within Iran without directly escalating the risk of military confrontation. While military strikes against key Iranian targets have been listed as a contingency option, some within the White House worry that aggressive military action could trigger a backlash detrimental to the protest environment; thus, the pros and cons are still being weighed.

Although Trump has not yet issued a final order, he has been briefed on relevant military plans, indicating that he remains open to further escalating policy toward Iran.

In addition to the heating situation in Iran, security in the Arctic region has also become a focus of international attention. European powers such as the UK and Germany are reportedly considering expanding military deployments in Greenland to send a clearer signal of strategic cooperation to the US on Arctic security. Specifically, Germany intends to push NATO to establish a joint task force to enhance regional control and defense capabilities.

Earlier, the US led a major raid against Venezuela, successfully removing President Maduro and his wife from the country, which reignited international concerns regarding regional sovereignty and the boundaries of security intervention.

A series of escalating cross-regional geopolitical disputes has significantly heightened uncertainty in global markets, causing investor risk aversion to soar. Gold and silver, as assets with traditionally strong safe-haven attributes, continue to attract investment capital for this reason.

Rising Rate Cut Expectations Support Gold Prices

Tensions escalate between the Federal Reserve and the Trump administration.

The US Department of Justice recently launched an investigation into the Fed, specifically regarding its policy-making process and its Chair's congressional testimony, sparking intense investor focus on whether the Fed can maintain its policy independence.

Concerns over whether the Federal Reserve can effectively resist increasing political pressure for rate cuts from President Trump have become a major source of uncertainty.

In a video statement on Sunday, Powell publicly acknowledged that the Fed had received a federal subpoena of a nature rarely seen in history. He also stated that the move could be seen as an attempt by the executive branch to expand its influence over monetary policy, particularly amid sustained pressure for larger rate cuts.

Powell stated in the declaration: "The threat of criminal charges exists because the Fed sets interest rates based on our best judgment of how to serve the public, rather than yielding to the will of the President."

"The probe has unnerved markets and raised questions about what might happen to the Fed once Powell steps down in May," said Russ Mould, investment director at AJ Bell.

"There is a fear that Trump is meddling too much with policies that are meant to be set independently," he added.

"With the Fed's independence now openly contested, the 'political risk' discount usually reserved for emerging markets is bleeding into the U.S. dollar, driving investors toward hard assets," said Zain Vawda, analyst at MarketPulse by OANDA.

"If tensions in the industrial sector intensify, silver prices could potentially rise to $90 or even $100 per ounce. Given that the gold-to-silver ratio is narrowing, this usually implies that silver has more upside potential than gold," Vawda said.

Meanwhile, recently released US non-farm payroll data fell short of expectations, further strengthening market expectations for a Fed rate cut this year.

Data released by the US Bureau of Labor Statistics last Friday showed that non-farm payrolls increased by only 50,000 in December 2024, significantly lower than the expected 70,000; the unemployment rate was 4.4%, slightly better than the market forecast of 4.5%.

Of even greater concern to the market was the collective downward revision of previous data. November's job gains were adjusted from 64,000 to 56,000, while the decline in October was even more severe, revised from an original estimate of -105,000 to -173,000—a total downward revision of 76,000 jobs over the two periods.

Overall, total US non-farm payroll growth for the full year of 2025 was approximately 584,000, far below the increase of nearly 2 million for the full year of 2024. According to statistics from Nick Timiraos, the reporter known as the "Fed's mouthpiece," the monthly average of new private-sector jobs in the US in 2025 was just 61,000, making it the weakest year outside of a recession since the "jobless growth" period of 2003.

According to forecasts from major Wall Street investment banks Goldman Sachs and Morgan Stanley, the Federal Reserve may begin gradually lowering its benchmark interest rate starting in the second quarter of 2026, with potential 25-basis-point cuts in June and September, respectively.

As market expectations for a decline in real interest rates grow, the opportunity cost of holding gold decreases, thereby providing support for gold prices.