Last week marked a turning point for the precious metals market. On Friday, January 30, silver fell by nearly 36% in a single session, the largest one-day drop in its trading history. Gold, meanwhile, lost more than 9%, its sharpest decline in over a decade. The selloff continued at the market open on February 2. As a result, gold prices retreated to around $4,400 per ounce, after having approached a historical peak near $5,600 just days earlier.
Why was the drop so severe?
As is often the case, there was no single cause. The scale of the decline primarily reflects the intensity of the preceding rally. In recent months, gold and silver had been among the main beneficiaries of political and monetary uncertainty, heightened by Donald Trump’s return to the White House. Fears of potential trade conflicts and concerns over the strength of the U.S. dollar boosted demand for safe-haven assets. Several central banks stepped up purchases of precious metals to diversify their reserves, further driving prices higher. Over time, the market entered a clear state of overheating.
What was the trigger?
The catalyst was Donald Trump’s decision to nominate Kevin Warsh as chairman of the U.S. Federal Reserve. A former member of the Fed’s Board of Governors from 2006 to 2011, Warsh is known for his firm stance on fighting inflation. His approach is broadly comparable to that of the current Fed chair, Jerome Powell, whom Trump had previously criticized for excessive caution. The nomination was interpreted by markets as a signal of policy continuity rather than a radical shift. It helped ease concerns over the stability of the dollar, which had been weakened by political rhetoric from the White House, and prompted a reallocation away from safe-haven assets.
Why did this weigh on gold and silver?
The rally in precious metals was largely based on a bet against the dollar. As confidence in the U.S. currency began to recover, the need to hold protective assets diminished sharply. Analysts at Commerzbank, cited by Bloomberg, noted that the market had long been waiting for an opportunity to take profits after a rapid surge in prices. Trump’s decision on the future leadership of the Fed provided exactly that signal.
Is a new upswing possible?
In the short term, volatility in the precious metals market is likely to persist. Nonetheless, structural factors, including ongoing geopolitical uncertainty and high levels of global debt, continue to underpin gold’s appeal as a reserve asset. Analysts at Deutsche Bank have previously suggested that gold prices could approach $6,000 per ounce by 2026.
