China's Gold & Silver Buying: The Flow That's Moving Markets

The core driver of the precious metals rally is China's unprecedented physical and official buying. The central bank's reserve accumulation is the clearest signal, with holdings rising to 2303.50 Tonnes in the third quarter of 2025, a record high that underscores a strategic shift away from the U.S. dollar. This official momentum is mirrored in explosive retail demand, where business in January this year was the best ever in around 20 years for one major trader, despite supply constraints. The flow is now translating into staggering price action, with silver's monthly gain being the most extreme, surging 65% in January alone to hit a fresh all-time high.

Price Impact: The Flow's Direct Effect on Markets

The buying flow is now the dominant force in the market, directly translating into staggering price action. Gold has surged past $5,600 per ounce, a level that marks a historic break and a nearly 30% gain year-to-date. This rally has been powered by a 65% surge in 2025 and sustained central bank accumulation, with China's holdings rising to a record 2303.50 Tonnes in Q3 2025.

Silver is the star performer, behaving like "gold on steroids." Its monthly gain was the most extreme, surging 65% in January alone to hit a fresh all-time high. Citigroup's analysts have taken note, issuing a bold forecast that silver will reach $150 per ounce within three months. This prediction is rooted in the same physical demand that is moving gold, but amplified by silver's unique role in technology and its current structural tightness.

The evidence of this physical market tightness is clear. While base metals like copper and aluminum saw profit-taking, precious metals are holding firm. Silver's price action, including a 5.15% drop in futures that still left it above $100, shows a market where physical demand is supporting prices against short-term volatility. This divergence highlights the unique flow dynamics at play, where China's strategic buying is creating a powerful, sustained bid that other metals cannot match.

Catalysts and Risks: What Could Change the Flow

The immediate catalyst for sustained demand is a massive infrastructure push. China's state grid announced a four trillion yuan ($574 billion) plan to upgrade the power grid between 2026 and 2030. This will directly boost industrial demand for copper, aluminum, and silver, providing a structural tailwind for base metals and a key support for silver's technological use case.

Yet the extreme price gains pose a direct risk. Record highs in silver, up 65% in January alone, and gold above $5,600, could limit further industrial uptake. Higher prices may dampen manufacturing appetite, particularly if economic growth slows. This creates a tension between the bullish flow from strategic reserves and the potential for price to self-correct if demand elasticity kicks in.

The final watchpoint is U.S. monetary policy. The Federal Reserve's recent dovish tone has been a key tailwind, with markets pricing in future cuts. Any shift in that stance, or a hawkish surprise, could weaken the dollar and reduce safe-haven flows into gold and silver. For now, the dovish pivot supports the rally, but it remains a critical external variable.