Gold’s Institutional Surge Is Pricing Out Retail Buyers – Will Silver Be the Big Winner?

Gold is on the move, with prices approaching record highs. As of today (Thursday, February 13, 2025), gold is trading at approximately $2,915 per ounce, having touched $2,942 earlier this week. While central banks & institutions continue accumulating gold, soaring prices are beginning to push retail buyers out of the market. This could set the stage for a massive breakout in silver, as investors look for a more affordable alternative.

China’s Central Bank Keeps Buying Gold

China’s People’s Bank of China (PBOC) expanded its gold reserves for the third consecutive month in January, even as prices surged. According to Bloomberg, the PBOC increased its holdings by 0.16 million troy ounces last month, continuing a trend of reserve diversification amid global economic uncertainties. Notably, China resumed gold purchases in November following a six-month hiatus, reinforcing its strategic commitment to gold despite historically high prices.

New Policy Allows Chinese Insurers to Invest in Gold

A fresh policy shift in China could further boost demand. A Bloomberg report highlights that China has launched a pilot program enabling insurers to invest up to 1% of their assets in bullion. This could unlock as much as $27 billion in additional gold demand. The move signals that Chinese authorities recognize the need for stable alternative investments as the country's property market struggles and economic growth slows.

Retail Buyers Being Priced Out of Gold

While central banks continue accumulating gold, Chinese retail investors are feeling squeezed out of the market. Jewelry demand is slowing due to economic headwinds, and high international prices—boosted by a strong dollar—are making gold purchases unaffordable for many.

Philip Klapwijk, managing director of Hong Kong-based consultant Precious Metals Insights Ltd had this to say: “There’s an affordability issue. And then there’s just the general economic malaise, and the fact that consumers are not in a position to open their purses or wallets in the way they used to.”

This trend suggests that if retail investors look for lower cost alternatives, silver could become an attractive substitute. When a 1 ounce gold coin costs more than $3000, a kilo bar of silver for $1100 starts to look like a pretty good deal.

South Korea’s Mint Halts Gold Bar Sales Due to Tight Supply

The Korea Minting and Security Printing Corp. recently suspended gold bar sales due to supply constraints, further underscoring the global shortage of physical bullion. With demand rising and supply tightening, gold premiums are increasing in major markets. The U.S., in particular, has seen a surge in demand for physical gold amid fears of upcoming tariffs on imported metals. If gold retail bullion products are in short supply, silver will be there to pick up the slack.

Silver’s Strength and the Case for Outperformance

Silver has already posted an impressive 47% year-over-year gain, currently trading at $32.76 per ounce. Despite this rally, it remains well below its 1980 nominal high of $50 and far below its inflation-adjusted peak of over $200 per ounce. If gold continues to rise and retail buyers shift their focus to more affordable alternatives, silver could see an accelerated breakout.

If retail investors are being priced out of gold, or if gold retail products become scarce, they will naturally gravitate towards silver to fill the same role of a tangible safe-haven asset. Unlike gold, silver is not currently experiencing the same level of institutional and central bank demand, meaning that a rise in retail demand is what is needed to catalyze a breakout to new record highs. If investors recognize silver as a viable alternative to gold, the potential for rapid price appreciation is significant.

Furthermore, silver’s industrial demand is poised to benefit from copper’s recent breakout. Copper, another key industrial metal, has experienced a vigorous breakout from a downtrend in effect since May of 2024, reinforcing the case for silver’s bullish outlook.

Goldbacks: An Alternative for Fractional Gold Investment

For those who prefer to stick to gold rather than switching to silver, fractional gold-backed currencies like Goldbacks offer an innovative solution. With the introduction of the new 1/2 Goldback note, investors can now purchase gold in even smaller denominations (1/2000th of an ounce), ensuring continued access to physical gold, regardless of how high the price may rise.

Final Thoughts

Gold’s rally is being driven by institutional accumulation, while retail demand is waning due to high prices. However, this dynamic could create a perfect storm for silver, which remains historically undervalued relative to gold. With central banks continuing to accumulate bullion, South Korea’s mint experiencing shortages, and China enabling new institutional buyers, the precious metals market is setting up for a fascinating year ahead.

For those looking to diversify, silver remains a compelling buy at current levels, especially given its industrial demand and the potential for renewed retail interest.

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Disclaimer: This article is for informational purposes only and does not constitute financial advice. Precious metals investing involves risks, and past performance is not indicative of future results. Always conduct your own research and consult with a financial professional before making investment decisions.