China Galaxy Securities released a research report indicating that January's market experienced shifts in macro narratives, ranging from event-driven safe-haven demand to concerns over global order restructuring. The core drivers pushing gold and silver prices higher currently include the widening trust deficit globally, impaired credibility of the U.S. dollar, structural contradictions in silver supply and demand, and intensified competition for key resources. Looking ahead to February, based on the aforementioned core market trading logic, the firm leans towards the view that a trend reversal for gold and silver is unlikely. However, attention must still be paid to the marginal changes arising from the subsequent evolution of various risk events, as well as potential expectation gaps in U.S. macroeconomic conditions. At the end of January, Donald Trump announced Kevin Warsh as the final candidate for Federal Reserve Chair; however, his impact on the immediate outcomes of recent Fed policy meetings might be relatively short-lived. There exists an expectation gap regarding Kevin Warsh's stance and market confidence during information transmission. Additionally, given that silver's volatility significantly exceeds that of gold and its direction is primarily led by gold, if gold undergoes a correction, silver's risk could be relatively higher, necessitating attention to flexibility in trading strategies and position management.

The main viewpoints of China Galaxy Securities are as follows: Firstly, regarding the gold fundamentals: (1) Supply-Demand Balance. According to the latest statistics from the World Gold Council, total supply reached 3,717 tonnes in the first three quarters of 2025, a 1.2% year-on-year increase. Global gold supply in the third quarter climbed 3% year-on-year to 1,313 tonnes, setting a new quarterly record; mine production increased 2% year-on-year in Q3 to 977 tonnes; recycled gold supply rose 6% year-on-year to 344 tonnes, remaining high and stable. Total gold demand in the first three quarters of 2025 grew 1% to 3,717 tonnes, corresponding to a value of $384 billion, a 41% year-on-year increase. Specifically, global gold demand (including OTC investment) in Q3 increased 3% year-on-year to 1,313 tonnes, the highest quarterly total since the World Gold Council began recording this data. In Q3, investment demand continued to firmly dominate gold demand. A substantial increase in global gold ETF holdings (+222 tonnes), combined with bar and coin demand exceeding 300 tonnes for the fourth consecutive quarter (316 tonnes this quarter), jointly drove the growth in total gold demand. Central bank gold purchases remained high in Q3, reaching 220 tonnes, a 28% increase from the previous quarter (although cumulative purchases for the first three quarters of the year were 634 tonnes, slowing compared to 724 tonnes in the same period last year). Jewelry consumption saw a double-digit year-on-year decline in Q3 (a trend continuing for the sixth consecutive quarter), dropping to 371 tonnes, primarily due to sustained pressure from historically high gold prices. Technology demand for gold slightly decreased compared to Q3 2024; although AI applications provided some growth impetus, this was offset by dual headwinds from U.S. tariff policies and soaring gold prices. Looking forward, the World Gold Council believes that on the supply side, increased profitability for gold producers, expected to remain high, will further stimulate production expansion, pushing mine output to new highs this year; total recycled gold is expected to increase, but the extent will be less than price trends might suggest, as it is heavily influenced by the realization value of old jewelry. On the consumption side, global gold ETFs still have upside potential, retail gold investment remains robust, expected to weaken only slightly in the second half; however, due to high prices and sluggish economic growth in most regions, jewelry demand is not expected to rebound significantly; technology demand may face pressure from high prices, slowing growth, and tariff issues, though strong AI-related consumption could offset these adverse factors.

(2) Central Bank Gold Purchases. During the Fed's rate-hike cycle starting in 2022, central bank buying not only mitigated the pressure on gold from rate hikes by European and American central banks and offset the impact of reduced gold ETF investment but also pushed the trading price center of gold higher. Against the backdrop of rate hikes, gold ETFs experienced continuous outflows, diverging from gold price trends. From Q2 2022 (post-hike) to Q2 2024 (pre-cut), global gold ETFs saw net outflows of 745.6 tonnes, yet during the same period, global central banks purchased approximately 2,500 tonnes, and the London gold price rose over 20%. As of Q3 2025 (latest data), the central bank buying trend continued. Although the volume in the first three quarters decreased year-on-year, central banks in emerging countries, represented by China, Turkey, Poland, and India, persistently increased their gold reserves. Furthermore, since January, the Polish central bank announced plans to purchase an additional 150 tonnes of gold, the Hungarian central bank indicated it might consider raising the gold share in its reserves, while the Tanzanian central bank announced plans to sell part of its gold reserves to fund infrastructure projects. Overall, the central bank gold purchasing trend is expected to be maintained.

(3) Gold ETF Demand. As of the end of December, cumulative global gold ETF holdings reached 4,025 tonnes, surpassing the previous historical peak of 3,769 tonnes in 2020. For the full year, gold ETF holdings saw a net increase of 801 tonnes, not only ending the net outflow trend since 2021 but also making this annual net increase the second-largest in volume after 2020's 893 tonnes. In summary, 2025 witnessed a significant resonance between central bank gold buying demand and ETF investment demand for gold, a trend the firm expects to continue into 2026.

Secondly, regarding silver fundamentals: Since Q3 2025, silver has demonstrated relatively independent price action compared to gold. The firm attributes the foundation of this move to longer-term contradictions inherent in silver. Specifically, in the first half of the current precious metals bull market, the gold-silver ratio center shifted higher, meaning silver's valuation relative to gold was in a偏低区间; additionally, the fundamental supply-demand gap for silver, after years of inventory drawdowns, has become more severe. Except for the U.S., inventories in major exchanges like London and China are at record lows. Subsequently, catalyzed by sentiment, capital flows, and other factors, combined with the Trump administration's inclusion of silver in its list of critical minerals and the new marginal demand from AI-related narratives, market fervor for silver intensified.

(1) Silver's Relative "Undervaluation" vs. Gold. Reviewing precious metals bull markets over the past 20+ years, silver's price increases have often exceeded those of gold, sometimes by 1.5 to 2 times. However, since late 2023, while gold repeatedly hit new historical highs, silver remained below $50, causing the center of the gold-silver ratio to rise from the long-term range of 50-80 to 80-90. In terms of relative valuation, silver is somewhat in an undervalued phase, thus possessing potential for catch-up gains.

(2) The Narrative of Long-Term Supply-Demand Gap in Silver Fundamentals. Fundamentally, a physical supply-demand deficit for silver emerged starting in 2021 and has persisted until this year. As silver is often a by-product, supply is relatively stable and difficult to significantly increase or decrease in the short term, highlighting the importance of demand changes on silver prices. On the demand side, traditional areas of industrial silver demand, such as jewelry, investment, and electronics, are generally stable in absolute terms and have limited impact. However, from 2020-2022, pandemic disruptions initially caused a sharp decline followed by a报复性反弹 in demand from India, the world's largest consumer of silver jewelry andware, leading to the emergence of a deficit. Although Indian demand normalized from 2023 onwards, rapid growth in the photovoltaic sector, led by China, introduced a new marginal increment—PV silver usage—thus sustaining the supply-demand gap. In recent years, this demand gap was primarily filled by drawdowns from exchange inventories, preventing prices from rising rapidly initially. By 2024-25, inventories at major global exchanges had mostly fallen to historical lows, allowing the long-accumulated supply-demand矛盾 to mature. Finally, in October 2025, a seasonal surge in Indian demand, coupled with rapidly increasing silver ETF demand, acted as a short-term catalyst that ignited the long-term矛盾, causing silver to break through its previous historical high of $50 and triggering a rare short squeeze in the London market. Deeper indicators help explain the "heat" in the silver market: Global silver ETFs saw significant net inflows, reaching over 26,000 tonnes by January, indicating sustained market optimism towards future price trends; silver lease rates spiked to around 35% during the most extreme conditions, recently fluctuating around 3% (still significantly above the historical norm near 0%), suggesting the tightness in physical silver supply and demand has not fundamentally reversed. Global silver inventories remain low overall (with the U.S. being an exception due to a siphon effect early in 2025). Notably, while LBMA inventories rose to over 27,000 tonnes, the firm estimates that approximately 19,000-20,000 tonnes are tied to ETFs and thus not freely tradable, leaving only about 7,000 tonnes of readily available, freely circulating silver. Domestic inventories in China also hit new lows due to siphoning by overseas markets; by end-January, inventories on the SHFE and SGE were only about 1,000 tonnes, leading to a deep backwardation structure between spot and futures since January and wide fluctuations in the domestic-international price spread, with the import window opening several times. However, it is important to note that silver ETF demand and price performance often exhibit reflexivity: rising prices drive increased ETF demand, which further squeezes available inventory, pushing prices even higher. Conversely, if a turning point occurs (e.g., if gold begins a correction), ETF demand would likely decrease due to price pressure, making available silver inventory more abundant and potentially leading to further price declines.

(3) Changes in Industrial Demand for Silver. Although PV silver usage has garnered significant attention recently, according to the latest CPIA PV roadmap, silver usage in mainstream TopCon cells has decreased from 106mg/piece to 86mg/piece, and the trend towards reduced silver consumption is expected to continue. Overall, declining silver intensity per unit remains the primary trend, and industry growth rates have also moderated. According to SMM, production of PV silver paste was 5,421 tonnes in 2025, down 8% year-on-year. The reduction in PV silver intensity and substitution by other materials represent potential bearish factors for silver prices. Towards the end of the year, as silver prices rose rapidly, PV cell manufacturers accelerated the substitution of base metals like copper for silver. However, the timeline for large-scale adoption of such materials remains uncertain and is not expected before mid-2026, requiring ongoing monitoring. This represents a flaw in the bullish narrative surrounding industrial silver demand. Additionally, according to a new report "Silver: Next Generation Metal" by the Silver Institute, development in new energy vehicles and data center construction are expected to bring marginal demand increments for silver. Automotive sector silver demand is projected to grow annually by 3.4% between 2025-2031, reaching approximately 94 million ounces (~2,900 tonnes) by 2031, a marginal increase of about 435 tonnes compared to 2026. Furthermore, global data center capacity grew 53-fold from 0.93 GW in 2000 to nearly 50 GW in 2025, with core components like servers, switches, and cooling systems requiring silver. In 2025, data centers in North America, Western Europe, and East/Southeast Asia accounted for 88% of global computing capacity. Oxford Economics forecasts U.S. data center construction will grow 57% over the next decade. Although there is no authoritative data on silver intensity specifically for data centers, based on industry growth prospects, marginal demand for silver is expected to increase.