Waning Enthusiasm for Gold and Silver: Navigating Central Bank Policies and Shifting Risk Sentiment in 2025

The year 2025 has been marked by a paradox in the precious metals market: record highs for gold and silver prices coexist with signs of waning investor enthusiasm. This duality reflects the complex interplay of central bank policies, shifting risk sentiment, and structural supply-demand imbalances. While institutional demand-particularly from central banks-has driven prices to historic levels, retail and speculative investors appear to be recalibrating their exposure, signaling a potential inflection point in the metals' trajectories.

Central Bank Policies and Reserve Diversification: A Structural Shift

Central banks have emerged as the primary drivers of gold's resurgence in 2025. Emerging market institutions, in particular, have accelerated their purchases, adding 410 tonnes of gold in the first half of the year alone-a 24% increase over the five-year average. This trend reflects a strategic shift away from U.S. dollar-dominated reserves, as policymakers seek to hedge against geopolitical risks, sanctions, and currency devaluation. By October 2025, gold had surpassed U.S. Treasuries in global reserve share for the first time in decades, a milestone underscoring the erosion of dollar hegemony and the growing appeal of politically neutral assets.

The Federal Reserve's accommodative stance has further amplified this dynamic. Despite maintaining rates at 4.25%-4.50%, the Fed's signals of rate cuts in late 2025 compressed real yields, making non-yielding assets like gold more attractive. Central banks' continued purchases, coupled with ETF inflows, have reinforced gold's role as a store of value, with J.P. Morgan forecasting prices to reach $5,000/ounce by mid-2026.

The Role of Monetary Policy and Inflation

Monetary policy has also shaped silver's performance, albeit with a different mechanism. While gold's price surge is largely driven by central bank demand, silver's rally has been fueled by a combination of industrial demand and monetary factors. The metal's use in solar photovoltaics, electric vehicles (EVs), and artificial intelligence components has created a structural supply deficit, with the silver market projected to face a five-year shortfall of 820 million ounces. Meanwhile, the Fed's rate cuts and quantitative easing reduced the opportunity cost of holding non-yielding assets, while a weakening U.S. dollar boosted demand for dollar-denominated commodities.

However, silver's dual role as both a monetary and industrial asset has introduced volatility. The gold-silver ratio, currently at 79:1, suggests silver is undervalued relative to gold, but its price remains constrained by industrial demand fluctuations and limited central bank support. Analysts argue that a catch-up rally for silver is inevitable, provided supply constraints persist.

Industrial Demand and Supply Constraints: A Tipping Point?

The industrial demand for silver has been a critical underpinning for its price surge. By late 2025, silver's use in EVs had increased significantly, with larger models requiring up to 50 grams of silver per vehicle. The energy transition has further amplified demand, as solar photovoltaic applications now account for a substantial share of global silver consumption. Yet, this demand is outpacing supply, with mine production declining and new projects lagging.

For gold, the story is different. While industrial demand is minimal, its role as a geopolitical hedge has been reinforced by central bank purchases and ETF inflows. Global gold ETF holdings added $5.2 billion in November 2025 alone, reflecting sustained institutional confidence. However, retail demand has shown signs of saturation. U.S. gold demand fell by 34% quarter-on-quarter in Q2 2025, despite strong ETF flows, indicating a potential shift in retail investor behavior.

Investor Sentiment and ETF Dynamics: A Mixed Picture

Investor sentiment in late 2025 reveals a nuanced picture. While gold and silver prices hit record highs, ETF outflows in October and November 2025 signaled short-term profit-taking. For example, the SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) experienced outflows during this period, even as central banks added 53 tonnes of gold in October. This divergence highlights the growing disconnect between institutional and retail investor behavior.

Retail demand metrics, however, remain robust. Gold demand surged 66% year-to-date in Q4 2025, driven by geopolitical tensions and a weakening dollar. Silver, meanwhile, outperformed gold with a 128% year-to-date gain, fueled by industrial demand and speculative buying. Yet, surveys indicate declining enthusiasm in some regions. U.S. gold demand fell sharply in Q2 2025, and silver's industrial demand is projected to decline by 4% in 2025 due to global economic uncertainty.

Shifting Risk Sentiment: A New Equilibrium?

The broader macroeconomic environment has also influenced investor behavior. Risk appetite improved in late 2025, with political developments-such as the potential end to a U.S. government shutdown-boosting equity markets. However, gold and silver continued to outperform, suggesting investors remain cautious. The correlation between precious metals and risk sentiment has weakened, as central banks and institutional investors prioritize long-term hedging over short-term speculation.

Conclusion: A Structural Bull Cycle with Caution

The 2025 bull market for gold and silver is underpinned by structural factors: central bank diversification, industrial demand, and monetary policy. While retail enthusiasm may wane in the short term, the metals' roles as hedges against inflation, geopolitical risk, and dollar devaluation remain intact. For investors, the key lies in balancing exposure to these assets with an understanding of evolving macroeconomic dynamics. As the Fed's rate-cutting cycle progresses and central bank purchases continue, gold and silver are likely to remain pivotal in a diversified portfolio-though their trajectories may diverge as supply-demand imbalances and industrial trends evolve.