The violent reversal in precious metals at the end of January was triggered when the name of a man suddenly appeared on the policy horizon in the US. Gold’s 9 per cent slump and silver’s record 26 per cent plunge on January 30 followed weeks of euphoric buying that had pushed prices to historic highs and left the market exquisitely sensitive to any shift in the macro narrative. The spark that lit the fuse was President Donald Trump’s move to nominate Kevin Warsh as the next chair of the Federal Reserve, a decision that challenged the assumptions underpinning the rally and exposed how crowded the trade had become.
This narrative gathered momentum as Trump repeatedly criticised the dollar’s strength and expressed a desire for looser monetary policy. Investors increasingly bet that the next Fed chair would be an ultra-dove, willing to cut rates aggressively and tolerate higher inflation. In that environment, holding non-yielding assets such as gold and silver made sense. As prices rose, speculative flows followed, amplifying the move in a feedback loop familiar from previous commodity manias.
Warsh’s sudden emergence as the preferred candidate for Fed chair upended these expectations. Warsh, a former Fed governor, is widely seen as a policy hawk by recent standards. He has been sceptical of prolonged quantitative easing, wary of oversized central bank balance sheets, and more inclined to prioritise inflation control and currency credibility.
For a market priced for easy money and a weakening dollar, Warsh came as a shock. The prospect of a Fed leader less tolerant of inflation and more supportive of a stronger dollar immediately challenged the core thesis behind the metals rally. As the dollar turned higher when US markets opened on January 29, gold fell sharply, briefly losing more than $200 an ounce in minutes. When reports confirmed Trump’s intention to nominate Warsh, selling intensified.
Warsh himself did not need to promise tighter policy to trigger the move. His reputation alone was enough. He was not the ultra dove investors had been expecting. In markets driven as much by expectations as by fundamentals, that distinction mattered enormously.
While the Warsh nomination provided the narrative trigger, the scale of the collapse also owed to market structure. By late January, precious metals futures were heavily leveraged. When prices began to fall, margin calls forced traders to liquidate positions at speed. CME Group’s decision to raise margin requirements on gold, silver, platinum and palladium futures added fuel to the fire.
Higher margins increase the cost of holding futures positions, reducing speculative participation and forcing weaker hands out of the market. As leveraged investors scrambled to meet margin calls, they sold not only metals but also other assets, creating a cascade effect that far exceeded what the initial policy news might have justified. This dynamic explains why even seasoned observers were struck by the breathtaking speed of the decline. The Warsh nomination was the match and leverage was the inflammable gas that had been collecting.
In hindsight, the precious metals market was primed for a correction. Analysts had been warning for weeks that positioning was stretched and sentiment overheated. Scenes of retail buying from China to Germany, likened to the late-1970s gold boom, were classic late-cycle signals. Trump’s comment days earlier that the dollar was “doing great” had already sparked a final burst of buying, pushing prices to unsustainable extremes.
Against that backdrop, almost any credible excuse could have prompted profit-taking. Warsh’s nomination happened to be the one that arrived first and was the most convincing because it struck at the heart of the easy-money narrative.
Kevin Warsh alone could not collapse gold and silver to this extent. Expectations of future rate cuts have not vanished as investors still anticipate at least two cuts in 2026. Geopolitical risks remain unresolved, and questions about US fiscal discipline persist. These factors may yet provide longer-term support for precious metals.
What the January crash revealed, however, is how fragile rallies built on one-sided positioning can be. The Warsh nomination mattered because it challenged a consensus view at a moment when the market had little room for doubt. For gold and silver bulls, Warsh became the face of the reversal.
Latest reports suggest that gold and silver continue to suffer downward pressure in the very near term as margin hikes and broader market volatility contribute to ongoing selling. Many analysts still characterise much of the plunge as part of a correction rather than a structural reversal of long-term drivers such as safe-haven demand and geopolitics.
JP Morgan said late on Sunday it expects demand from central banks and investors to drive gold prices to $6,300 per ounce by year-end. "We remain firmly bullishly convicted in gold over the medium-term on the back of a clean, structural, continued diversification trend that has further to run amid a still well-entrenched regime of real asset outperformance vs paper assets," the brokerage said in a note.
Meanwhile, in silver, with prices at $80 an ounce since late December, the drivers of the continued rally have become harder to pinpoint and quantify, making it more cautious, JPMorgan said. Moreover in the case of silver, without central banks as structural dip buyers as in gold, there remains the risk for a further move back higher in the gold-to-silver ratio in the coming weeks, the brokerage added. "We still do see a higher floor for silver on average (around $75-$80/oz) for now vs our previous expectations as, even after overshooting in its catch-up to gold, silver is unlikely to fully relinquish its gains," JP Morgan said.
(With inputs from agencies)
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In the run-up to the crash, gold and silver had come to embody a broader loss of confidence in the US dollar and the institutions that manage it. Concerns over Federal Reserve independence, persistent geopolitical tensions from the Middle East to Latin America and a swelling US fiscal deficit combined to fuel demand for hard assets. Gold’s surge to nearly $5,600 an ounce and silver’s spike above $120 were seen as insurance against political and monetary disorder.This narrative gathered momentum as Trump repeatedly criticised the dollar’s strength and expressed a desire for looser monetary policy. Investors increasingly bet that the next Fed chair would be an ultra-dove, willing to cut rates aggressively and tolerate higher inflation. In that environment, holding non-yielding assets such as gold and silver made sense. As prices rose, speculative flows followed, amplifying the move in a feedback loop familiar from previous commodity manias.
Why Kevin Warsh changed the story
Warsh’s sudden emergence as the preferred candidate for Fed chair upended these expectations. Warsh, a former Fed governor, is widely seen as a policy hawk by recent standards. He has been sceptical of prolonged quantitative easing, wary of oversized central bank balance sheets, and more inclined to prioritise inflation control and currency credibility.
For a market priced for easy money and a weakening dollar, Warsh came as a shock. The prospect of a Fed leader less tolerant of inflation and more supportive of a stronger dollar immediately challenged the core thesis behind the metals rally. As the dollar turned higher when US markets opened on January 29, gold fell sharply, briefly losing more than $200 an ounce in minutes. When reports confirmed Trump’s intention to nominate Warsh, selling intensified.
Warsh himself did not need to promise tighter policy to trigger the move. His reputation alone was enough. He was not the ultra dove investors had been expecting. In markets driven as much by expectations as by fundamentals, that distinction mattered enormously.
Leverage, margins and the mechanics of a crash
While the Warsh nomination provided the narrative trigger, the scale of the collapse also owed to market structure. By late January, precious metals futures were heavily leveraged. When prices began to fall, margin calls forced traders to liquidate positions at speed. CME Group’s decision to raise margin requirements on gold, silver, platinum and palladium futures added fuel to the fire.
Higher margins increase the cost of holding futures positions, reducing speculative participation and forcing weaker hands out of the market. As leveraged investors scrambled to meet margin calls, they sold not only metals but also other assets, creating a cascade effect that far exceeded what the initial policy news might have justified. This dynamic explains why even seasoned observers were struck by the breathtaking speed of the decline. The Warsh nomination was the match and leverage was the inflammable gas that had been collecting.
In hindsight, the precious metals market was primed for a correction. Analysts had been warning for weeks that positioning was stretched and sentiment overheated. Scenes of retail buying from China to Germany, likened to the late-1970s gold boom, were classic late-cycle signals. Trump’s comment days earlier that the dollar was “doing great” had already sparked a final burst of buying, pushing prices to unsustainable extremes.
Against that backdrop, almost any credible excuse could have prompted profit-taking. Warsh’s nomination happened to be the one that arrived first and was the most convincing because it struck at the heart of the easy-money narrative.
Kevin Warsh alone could not collapse gold and silver to this extent. Expectations of future rate cuts have not vanished as investors still anticipate at least two cuts in 2026. Geopolitical risks remain unresolved, and questions about US fiscal discipline persist. These factors may yet provide longer-term support for precious metals.
What the January crash revealed, however, is how fragile rallies built on one-sided positioning can be. The Warsh nomination mattered because it challenged a consensus view at a moment when the market had little room for doubt. For gold and silver bulls, Warsh became the face of the reversal.
What lies ahead for gold and silver?
Latest reports suggest that gold and silver continue to suffer downward pressure in the very near term as margin hikes and broader market volatility contribute to ongoing selling. Many analysts still characterise much of the plunge as part of a correction rather than a structural reversal of long-term drivers such as safe-haven demand and geopolitics.
JP Morgan said late on Sunday it expects demand from central banks and investors to drive gold prices to $6,300 per ounce by year-end. "We remain firmly bullishly convicted in gold over the medium-term on the back of a clean, structural, continued diversification trend that has further to run amid a still well-entrenched regime of real asset outperformance vs paper assets," the brokerage said in a note.
Meanwhile, in silver, with prices at $80 an ounce since late December, the drivers of the continued rally have become harder to pinpoint and quantify, making it more cautious, JPMorgan said. Moreover in the case of silver, without central banks as structural dip buyers as in gold, there remains the risk for a further move back higher in the gold-to-silver ratio in the coming weeks, the brokerage added. "We still do see a higher floor for silver on average (around $75-$80/oz) for now vs our previous expectations as, even after overshooting in its catch-up to gold, silver is unlikely to fully relinquish its gains," JP Morgan said.
(With inputs from agencies)
