(Kitco News) – The rally in gold is happening despite the absence of many of the yellow metal’s traditional drivers, and the price insensitivity of the opaque buying means prices will likely be off to the races again soon, according to Ross Norman, CEO of Metals Daily.

Norman said that gold has long been “a subject of intrigue” for investors, but its recent rally is truly perplexing.

“Gold has always been driven by a complex web of economic, geopolitical, and market forces—but is perhaps best described as being the ‘sum of all fears,’” he wrote in the latest issue of Bullion World. “However, the dynamics that are typically at play are now behaving unpredictably. This makes the gold market an especially difficult one to understand at the moment. For starters, the ongoing bull run in gold seems to be ignoring many of its traditional correlations, leaving analysts to ask: why?”

Norman pointed out that gold’s traditional correlations and metrics fail to explain its gains.

“Gold has traditionally been seen as a hedge against inflation,” he said. “As inflation rises, gold prices tend to follow suit. And although this pattern holds in the long term, over the short term it is behaving unexpectedly. In 2024, with inflation rates in the West declining fast, gold has bucked this trend, accelerating rather than slowing down as one might expect.”

Gold has a strong inverse relationship with the U.S. dollar; when the dollar strengthens, gold usually weakens. “Yet in 2024, both the US dollar and gold have risen together—an unusual alignment that defies historical norms,” he said.

Gold also has a strong inverse relationship with U.S. treasury bond yields, as investors choose yield-bearing bonds over gold when yields are high. “Yet, in 2024, gold and bond yields have been moving in parallel, suggesting that traditional relationships are being disregarded.”

“In short, gold has de-coupled from almost every expected norm,” he said.

Gold’s relationship with silver is also bucking the historical trend. “Historically, silver tends to outperform gold during bullish periods in the precious metals sector,” Norman wrote. “However, the gold-to-silver ratio has surged, indicating that silver is underperforming and being largely bypassed in this rally. It is the dog that did not bark.”

And gold demand from Asia has remained surprisingly strong despite all-time high prices, which is also unusual. “Asian buyers are traditionally highly sensitive to price changes, especially as jewellery items incur very thin margins and there is little scope to absorb price increases,” he said, “but this time, they have remained active participants even as gold prices have reached all-time highs in domestic terms.”

Norman shares three possible explanations for the yellow metal’s unusual performance.

“One theory suggests that gold is simply no longer correlated with other assets in the way we thought after centuries of reliable and predictable behaviour,” he said. “Another theory is that we are witnessing a paradigm shift in the gold market which is less driven by Western economic considerations. The third, and perhaps most compelling, theory is that a large, opaque player is behind the surge in demand— someone whose purchases are very high conviction and large enough to distort the market.”

Norman said the idea that gold is no longer correlated with other assets seems quite unlikely. “These correlations have a logical basis although they can - as we see now - be over-ridden temporarily.”

The ‘paradigm shift’ theory he doesn’t dismiss outright, saying it could be that Western market participants have hitherto failed to fully understand the impact of Asia’s rise to dominance in the metals space.

“China is both the largest gold producer and consumer and it follows that perhaps the East is having an increasing effect on price discovery – a little like a strong magnetic field,” he said. “This would be to say that to understand gold one would need to see it through the lens of the Asian investor, and less as a westerner might. And certainly there are very powerful reasons just now why investors in the East would buy gold, and arguably less so in the west. For sure many of the largest price moves have occurred during Asian trading hours so this argument may have some validity.”

But Norman said that many analysts favor the third theory, “that a large and unknown player is driving gold’s recent rally.”

“This would explain why gold’s rise has seemed to cut across almost every traditional market correlation,” he said.

Norman noted that the buying that has driven the current rally has been unusually opaque. “Typically, market data such as import/export statistics, vaulting data, and shipping rates can provide clues about the sources of demand,” he said. “But right now, there is very little statistical data available to explain who is behind this significant buying. And if you know 'who' is buying, then you can understand much about its quality (strong hands buying (central banks) or maybe short-term speculative plays?) and by extension, to what extent the rally can be expected to prevail.”

He said that there are only a handful of high-conviction buyers that fit the bill. “Gold has scarcely paused for consolidation, let alone profit-taking for nearly one year now and as we have seen the price action ignores traditional headwinds,” Norman wrote. “The buying appears to be highly concentrated, and the lack of visible telltales suggests that it’s being driven by a single, powerful entity whose identity remains a mystery, but their influence on the market is undeniable.”

Norman offers two possible sources for the massive 34% price increase in gold over the last year.

“One opaque sector is the derivatives market,” he said. “It is known that significant leveraged long positions have been taken on the Shanghai Futures Exchange (SHFE) and most likely in the OTC market. It fits the bill insofar as derivatives plays tend to be agnostic of broader macro events and, if sufficiently large, it can also bring about a self-fulfilling wish. If say a Chinese speculator buys a very large number of gold calls, expecting prices to rise, then the bank on the other side of that trade would typically hedge by buying about half the position in the spot market. Which, if sufficiently large would cause the price to rise, prompting further hedging by the bank, creating a feedback loop.”

“The only place where this would be evident is spot purchases by the bank who would buy gold, which would lead to more buying – pretty well what we are seeing,” he noted.

The second potential source is large-scale but undeclared central bank buying. “With financial sanctions across the world running high, and with arguably the US under the previous administration having ‘weaponised the dollar’ and excluded a number of nations from international payment systems, it follows that prudent central banks who might fear a similar fate would sell dollar assets and acquire gold as it has no counterparty risk,” he said. “In this environment they would simply place purchase orders from the major refineries and here arguably price is not especially important. Again it fits the profile.”

“Either or possibly both scenarios are at play just now,” Norman said. “If you can tell something of the character of a man from how he behaves under adversity, then so it is for metals. And the character gold is displaying just now is an unusually insensitive approach to broad economic events… and relentless buying.”

Looking ahead, Norman said gold’s standout performance in the early part of the year makes a period of consolidation more likely. “[G]old has already achieved an all-time high of $2955 on two occasions in February 2025 – much of what we had expected for the first 6 months has already happened in just 6 weeks,” he said.

“[T]he current bull run is intact but momentum has waned and gold has fallen below its trading channel… and this is no bad thing,” Norman concluded. “Gold needs a period of consolidation and this will confer greater strength to future gains. Meanwhile we need the real or physical markets to adjust their thinking around what gold's 'fair value' is and you can be sure we'll be back to the races before long.”

Spot gold shot up to an intraday high of $2,940.69 on Wednesday afternoon – just $15 from the all-time high – before pulling back slightly.

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