Why Gold and Silver Are Falling: A Retreat from the Ancient Havens

By Matthew Parish, Associate Editor

Sunday 8 February 2026

For much of recorded history, gold and silver have occupied a privileged place in the human imagination and in financial systems. They have been currencies, religious symbols and repositories of value in times of war, inflation and institutional collapse. When confidence in paper promises falters, these metals have traditionally been where capital seeks refuge. Yet in recent months both gold and silver prices have fallen sharply, unsettling investors who assumed that an unstable geopolitical and economic environment would naturally favour them. The reasons for this decline lie not in a single cause, but in a confluence of monetary policy, financial innovation, changing investor psychology and the peculiar dynamics of contemporary crises.

At the centre of the explanation sits the persistence of high interest rates. Central banks in the United States and Europe have been reluctant to declare victory over inflation, despite clear signs of slowing economic activity. The Federal Reserve has maintained a restrictive stance for longer than markets expected, while signalling that rate cuts, when they come, will be gradual rather than dramatic. Similarly the European Central Bank has emphasised price stability over growth, even as parts of the eurozone flirt with recession.

Gold and silver are non-yielding assets. They do not pay interest or dividends. When real yields on government bonds rise, as they have over the past year, the opportunity cost of holding precious metals increases. Investors who might once have held gold as a hedge against inflation can now obtain positive real returns from relatively safe sovereign debt. This shift is particularly pronounced amongst large institutional investors, whose asset allocation decisions are driven by relative returns rather than symbolism or tradition.

The relative strength of the United States dollar (although it has decreased slightly in value recently) has compounded this effect. As global capital has flowed into dollar-denominated assets, seeking both yield and perceived safety, the dollar has appreciated against most major currencies. Because gold and silver are priced internationally in dollars, a stronger dollar mechanically depresses their prices for non-dollar buyers. This has reduced physical demand in key markets such as India, China and parts of the Middle East, where jewellery and bullion purchases are sensitive to local currency costs.

Investor psychology has also changed in more subtle ways. In earlier crises, precious metals benefited from a lack of credible alternatives. Today they compete not only with bonds and equities, but also with a proliferating array of financial instruments and narratives. For a certain class of investor, cryptocurrencies have supplanted gold as the perceived hedge against fiat currency debasement and state overreach. While the volatility of digital assets far exceeds that of precious metals, their cultural association with technological modernity and financial rebellion has drawn capital that might once have flowed into bullion.

At the same time equity markets, particularly in the United States, have remained unexpectedly resilient. Despite geopolitical tensions, trade fragmentation and ongoing wars, investors have continued to believe in the capacity of large corporations, especially those associated with artificial intelligence and defence, to generate profits. As long as equity indices appear to offer both growth and liquidity, the urgency to seek refuge in inert stores of value is diminished.

Silver has been affected by an additional, more technical factor: its dual identity as both a precious and an industrial metal. Slowing global manufacturing, especially in China, has weakened industrial demand for silver in electronics, photovoltaics and other applications. While long-term narratives about the energy transition suggest rising future demand, current economic data point to slack capacity and cautious investment. In such an environment, silver suffers both from reduced safe-haven demand and from cyclical industrial weakness.

There is also a political dimension to the decline. Many investors had expected that wars in Ukraine and the Middle East, coupled with deteriorating relations between major powers, would drive a sustained flight into gold. Instead the conflicts have been absorbed into markets with a degree of emotional detachment. War has become, financially speaking, normalised. Defence spending is priced in. Sanctions are anticipated rather than shocking. The sense of an imminent systemic rupture, which historically drives gold upward, has not fully materialised.

Finally central banks themselves, long seen as a floor under gold prices through steady accumulation, have shown signs of slowing purchases. While some emerging market central banks continue to diversify away from the dollar, the pace of gold accumulation has moderated. This has removed an important source of steady demand that previously cushioned prices during periods of speculative selling.

The current fall in gold and silver prices should not be read as a declaration of their irrelevance. Rather it reflects the specific configuration of today’s financial system, in which high interest rates, strong currencies and abundant financial instruments have temporarily displaced the ancient logic of hoarding metal in uncertain times. History suggests that this logic never disappears entirely. It merely waits for a moment when trust in institutions, currencies and promises once again collapses more quickly than yields can compensate. When that moment comes, gold and silver will almost certainly be rediscovered. For now they are paying the price of a world that believes, perhaps prematurely, that it still has events under control.