Precious metals at record highs: Gold and Silver shine as the Fed ends its Tightening Cycle

Precious metals are posting strong gains again today. Gold has surpassed $4,200 per ounce, while silver is approaching $52. The devaluation of fiat currencies continues, and assets with limited supply are once again drawing strong interest from investors. But what happened overnight to trigger these new highs?

Jerome Powell Announces New Stimulus Measures

During the pandemic (2020–21), the Federal Reserve doubled its balance sheet from $4.5 trillion to $9 trillion, driving the highest inflation since the 1970s. Easy money overheated the economy—and raised the cost of living, from food to housing.

In June 2022, the Fed began to reduce its balance sheet, effectively pulling money out of the economy. Less balance means less liquidity, which in theory should push asset prices lower—something that hasn’t happened, even under these conditions.

Yesterday, Fed Chair Jerome Powell hinted at the end of this balance-sheet reduction program—known as Quantitative Tightening (QT)—through which the central bank had been selling assets or allowing bonds to mature, effectively draining cash from the system.

First came rate cuts; now, the end of QT. Everything suggests that a new cycle of monetary expansion is beginning.

Why Announce It Now?

Because the financial system is running out of liquidity. The Fed’s “cushion”—its Reverse Repo Facility—has fallen from $2.5 trillion to barely $5 billion.

In this system, the Fed borrows money from banks and funds, lending them Treasury securities in exchange, with a promise to repurchase them later.

Think of it as a giant parking lot for cash: when there’s too much money in circulation, the Fed opens spaces in that lot to park excess liquidity and prevent overheating. When it needs markets to move again, it closes the lot—and the money flows back into the system.

Right now, there’s no money left parked. And when money is scarce, credit freezes. The Fed knows it: without liquidity, the system breaks—just as it did in 2008.

That’s why they’ll print again.

Market Impact

Political and fiscal uncertainty this year across major economies—including the United States, France, and Japan—is putting pressure on their currencies. Investors have been hedging their exposure to the U.S. dollar, euro, and yen by turning to assets such as gold and silver.

If markets were already at record highs—with gold, silver, and bitcoin all near peaks—these latest developments suggest that, in the coming months, there is only one direction left: new all-time highs.

While deficit spending and rate cuts amid a potential stagflationary backdrop are the main drivers behind this shift in sentiment, we believe there is more to it.

Markets are now pricing in record levels of AI-related capital expenditure (CapEx) and what will inevitably become an “AI war” between the United States and China. The U.S. will print more money and widen its deficits with the sole purpose of “winning” the AI revolution.

Gold and silver are not only becoming more valuable — confidence in fiat currencies is collapsing. When everything reaches record highs at the same time, that is no longer a bull market; it is a shift in the system itself.

In short, precious metals are benefiting from an environment of rising liquidity and declining trust in fiat currencies. Still, even in this favorable setting, it is worth monitoring several factors that could alter the market’s dynamics.

What Are the Main Risks That Could Halt the Rally?

1. A new tightening cycle by the Federal Reserve.
Historically, Fed tightening has been the most effective way to end bull markets in precious metals. For now, though, the outlook points the other way: the end of QT and ongoing rate cuts imply more liquidity, not less. The Fed could slow the pace of cuts in coming quarters, but that alone seems unlikely to shift investors’ appetite for safe-haven assets.

2. A rebound in oil prices.
A sustained rise in crude prices would drain global liquidity and raise energy costs, risking slower growth and a stronger dollar. For now, oil remains under pressure amid trade tensions and fears of a slowdown—making this risk appear contained.

3. An increase in supply or forward sales by producers.
With gold trading above $4,000 per ounce, miners are enjoying record margins. Still, few have the capacity to expand production after years of underinvestment. Some might be tempted to lock in current prices through forward sales, but so far, this hasn’t been a significant trend.

4. A slowdown in central bank gold purchases.
In recent years, central banks have become the largest institutional buyers of gold, adding to reserves regardless of price. This trend could moderate if the U.S. current account deficit—which narrowed from 5.9% to 3.3% of GDP between Q1 and Q2 2025—continues to improve.
As long as the U.S. runs a large deficit, dollars will keep flowing abroad, and foreign central banks will use some of those dollars to buy gold.

5. A rebound in the Chinese renminbi.
One of the major anomalies in global markets today is the undervaluation of the Chinese renminbi. The currency trades well below its purchasing power parity level, despite China’s position as the world’s leading industrial producer. This reflects, in large part, the ultra-low interest rates maintained by the People’s Bank of China for years. With yields so low, Chinese savers have looked outside their currency—channeling funds into gold, seen as a stable hedge against currency depreciation.

However, just this morning, the People’s Bank of China set its daily yuan reference rate at 7.0995 per dollar, breaking below the symbolic 7.10 threshold for the first time since November. By setting a stronger midpoint (fewer yuan per dollar), the central bank is signaling a willingness to limit depreciation—or even tolerate appreciation.

If the renminbi begins to strengthen sustainably, Chinese demand for physical gold could ease, as savers move back toward local assets with better returns.

For now, however, the fundamentals remain unchanged: more stimulus, less faith in fiat currencies, and a liquidity backdrop that continues to favor precious metals.