Gold recently fell more than $200 an ounce and silver fell about $6. Physical bids dropped along with spot price. One argument says this breaks the past pattern, where physical buyers held prices up during paper-market sell-offs, and that the physical squeeze is ending.
I push back on that. One or two days is not a trend reversal. The claim rests on a very small sample. The idea is that the physical bid defended every sell-off for three months, but I don't know that to be true. Bids have come up a little from where they were, so I'll give them that. Bids came off a bit at the highest level if you check the primary distributors, but a two-day change is being mistaken for the death of a whole metal squeeze. I didn't even know we were in a physical squeeze.
Dealer bids are not the same as demand
A dealer cutting its bid on American Eagles by 25 cents, from $1.50 over spot to $1.25 over, does not tell us end-user demand has vanished. It tells us the dealer's willingness to pay at that moment changed. Those are different things. You can have strong physical demand while dealer spreads widen, because wholesalers are unsure where the market is heading. That is risk management after a violent $200 gold drop, not proof demand disappeared. The physical market may have simply repriced after spot moved sharply lower.
Reading retail product to judge the whole physical market is the biggest weakness in the argument. The physical gold market is far larger than retail coins: wholesale bars, central banks, sovereign wealth funds, sovereign buyers, Asian demand, refiners, fabricators, ETFs, institutional investors, over-the-counter London trading, and private wealth. Jumping from "US retail coin bids weaken" to "physical squeeze ending" is a bigger conclusion than the evidence supports.
The real test
If physical demand is truly overwhelming supply, a falling spot price should eventually create more physical buying, not less. So watch the next several weeks, not the next several hours. If spot falls while physical bids and premiums also fall, that supports the squeeze-ending view. But the thesis becomes more convincing if spot falls while physical buying rises, inventories tighten, premiums stabilize, and wholesale bars stay hard to source. I think that is what we will see.
I'd especially watch 400-ounce gold bars and kilo bars versus retail coin bids. If retail premiums soften while wholesale physical stays tight, then the retail measure is watching the wrong part of the market. A legitimate short-term change in behavior has been spotted, but it moved from observation to conclusion too fast. The physical market just stopped giving the same downside support seen over the last few weeks or month. That is a warning sign, but it needs more data.
Sentiment and the retail crowd
June and July saw record-low sentiment, which then climbed back up as metals moved favorably. When prices sold off again, many players reacted with a kind of PTSD, thinking the earlier move was a fake-out and choosing to hold off. That paused the buying frenzy. This is not the end of the rally.
Rick Rule studied the silver squeeze of the first quarter of 2021 closely and ran a boot camp titled "Robin Hood, Reddit and the Rise of the Retail Investor." He found retail buying of physical coins, bars, and rounds was a very small contributor to silver's price move. I agree fully. The public has had little to do with moving the market. Central banks and institutional buying drive it, and that has been obvious for a long time.
Rick has long said that only half of 1% of everyone from ordinary savers to the Harvard Endowment Fund holds any gold or gold-related equities. If public participation rose to 5% or 10%, it would push the market hard. But what we have been seeing is classic misdirection: the public has no clue what is happening in metals, while big institutional buyers and central banks use that to their advantage and have been picking the market's pocket for years. Physical product inventory has not been hard for me to get for quite some time, so the retail crowd is not the force controlling price.
Silver Eagle wholesale bids over the past month are down maybe 20 cents, which is not a cratering. It is too early to judge based on a couple of days.
The structural buyer: Tether
Tether is a structural buyer now emerging, alongside central banks, the buyers that actually move the market. A report says Tether bought almost 74 tons of gold since 2024 (73.6 tons). China has claimed 49 tons, though much of China's buying is unofficial and could be ten times what it reports. Even by official numbers, Tether now holds more gold than Australia, the world's third-largest gold producer. We have never had a gold bull market with a structural bid quite like this.
Fidelity doubled its gold exposure from 2.5% to 5%. Using Rick's yardstick, that is a large move. Based on the historical link between gold and M2 money supply (they use global M2, which is climbing sharply, as US M2 has gone straight up), Fidelity analysts say gold should be valued above $5,000 an ounce now. That implies about 10% upside from current levels, which is why banks are setting options around $5,100.
Yields, debt, and the policy trap
The recent pullback can be tied to Warsh's hawkish stance. Warsh was dovish in June and yields jumped; noncommittal in July and yields jumped; hawkish in August and yields jumped again. Higher yields and a stronger dollar can pressure gold, and that is what is happening now.
The bigger picture is what rising yields signal: higher inflation, rising energy costs, and $40 trillion in federal debt that is getting harder to service. Those are the long-term conditions that support owning gold. The question is how long the system can handle higher rates.
Bo Hines, Trump's crypto official, is now CEO of Tether's US arm. Tether has been buying a huge amount of gold and opened the back end of its technology to the Justice Department, which identified accounts held by Iran's IRGC and froze those stablecoins at the smart-contract level. You cannot freeze coins that way without back-end access, which Tether granted. The legal trouble Tether was in seems to have vanished. I believe Tether may be buying gold on behalf of the Treasury, though that remains to be seen. Either way, buying this much gold is not a bet against the dollar for tomorrow. If it is buying for itself, it is positioning for a world where dollars, gold, and blockchain rails all coexist. People are starting to wonder how all this debt gets paid off.
The market is demanding higher rates because it questions where the money will come from. The manipulation holding rates down seems to be working less and less. Japan's 10-year yield just hit 3% for the first time in about 30 years. The market is even pricing in the chance of another Fed rate hike, which is crazy.
This looks short-term, because if bond yields keep creating this much pressure, you would expect the Fed to eventually ease. But what if inflation is still a problem? They may have boxed themselves in. Yields are near 5%, not a magic number but a line in the sand. Easing could reignite inflation; holding rates high makes the massive debt more expensive. The real danger is a bond market that stops listening to the Fed and stops accepting its guidance.
