Extraordinary trends in gold and silver: the impact on forex and the role of speculation

Morning FX This year, the precious metals markets have recorded an extraordinary performance. Gold has increased by 70%, copper by 45%, while silver has hit an impressive +170%, representing the largest annual rally in the last 50 years according to the last 30-year gold chart. These numbers tell more than just a story of appreciation: they conceal deeply changed market dynamics.

Unprecedented volatility in the silver market

The situation became particularly tumultuous in the second half of the year. The short-term contract 2602 for silver on the Shanghai Futures Exchange showed an intraday volatility of 10%, oscillating from +5% to -5% within hours. Platinum and palladium followed the same trend, with capital continuously shifting between different precious metals.

Silver, with its reduced market capacity, has become the main battleground for speculative operations. Despite efforts by the Shanghai Futures Exchange to increase required margins and the introduction of purchase restrictions on silver LOF funds (with unusual premiums up to 50%), speculative pressure has not abated. Implied volatility in silver options has reached 70%, an extraordinary level compared to the relative calm of the forex market.

The collapse of traditional correlation models

Conventional analytical tools can no longer explain these fluctuations. The Fed has continued to cut interest rates, and real rates have decreased, yet they still maintain a restrictive stance. Analyzing traditional dollar anchors, safe-haven expectations, rate differentials, and inflation forecasts, the correlation between gold, silver, and the currency market is decreasing. The 30-year gold chart illustrates how this relationship has historically been stable, making current dynamics even more anomalous.

How arbitrage systems influence the forex market

Despite the reduced traditional correlation, capital flows related to arbitrage between domestic gold and international gold continue to exert significant short-term pressure on the currency market.

International gold (XAU) and Shanghai gold represent two distinct markets. When offshore gold prices are high, arbitrageurs sell international gold to acquire dollars, which they then convert into local renminbi to buy gold in the domestic market. This sequence generates pressure on currency conversion to Chinese yuan. Conversely, when offshore gold prices are depressed, an opposite push emerges toward foreign currency purchases.

These operations tend to reduce the price differential between international gold and Shanghai gold, directly influencing the volatility of the USDCNY exchange rate. The mechanism acts as a transmission channel between precious metals markets and the currency system, even when traditional statistical correlations weaken.

Conclusions

The evolution of the market in 2025 signals a fundamental transformation: precious metals, led by silver, have shifted from value protection tools to pure speculation vehicles. Established interpretative models no longer hold up to this new reality, while the correlation between gold, silver, and currencies is gradually diminishing. However, capital movements derived from arbitrage strategies continue to exert a tangible influence on supply and demand in the forex market, representing a connection channel often overlooked by traditional analysts.