Epic plunge in gold and silver prices: What happened?

US President Trump's nomination of Kevin Warsh as Federal Reserve Chairman triggered the most severe sell-off in precious metals in decades.

Gold and silver, which hit record intraday highs on Thursday, plummeted.

Gold prices turned lower in early Asian trading on Friday after news broke that Trump would nominate Warsh as Federal Reserve Chairman. European stocks fell below the $5,000/ounce mark during the session, and the decline widened in the US afternoon session.Spot gold fell by nearly 13% intraday, the largest intraday drop in more than forty years since the early 1980s, exceeding the decline during the 2008 financial crisis.

Silver, which broke through $120 for the first time in history on Thursday, fell below $100 in European trading on Friday, and briefly dropped below $80 in US trading. Spot silver plunged more than 35% at one point during the session, marking its largest drop on record. This "bloodbath" affected the entire metals market, with LME copper, which also hit a record high on Thursday, falling nearly 6% at one point. The market attributed the plunge to a sharp shift in investor expectations regarding Federal Reserve policy. Warsh, long known for his hawkish stance, despite recently publicly supporting rate cuts to appease Trump, is still considered unlikely to implement aggressive rate cuts. Commerzbank analyst Thu Lan Nguyen stated, "The market perceives Warsh as more hawkish than Hassett and other candidates." This expectation fueled a dollar rebound, reducing the attractiveness of dollar-denominated commodities to global buyers. Warsh's nomination also eased market concerns about the loss of the Federal Reserve's independence. Previously, investors flocked to precious metals as a safe haven, partly due to concerns about currency devaluation and the Fed's independence. ING FX strategist Francesco Pesole said, "Wash's choice is good news for the dollar, alleviating some concerns about a more dovish candidate." This plunge also exposed the extreme vulnerability of the precious metals market. Following the recent surge in gold and silver prices, crowded long positions, record-breaking call option purchases, and extreme leverage levels have put the market in a state where a "gamma squeeze" could be triggered at any moment. Pepperstone Senior Research Strategist Michael Brown stated: "The market is already very bubbly; it only takes a small trigger to cause this kind of movement." Gold and silver experienced a historic plunge during Friday's midday trading session in the US. The most active New York silver futures contract fell below $80 after hitting a record high of $121.785 on Thursday, dropping as low as $74, a daily decline of slightly over 35%. Spot silver fell below $74.60, a daily drop of 35.5%, marking the largest intraday decline on record. Gold also suffered a severe blow. New York gold futures, which rose to a record high of $5586.2 on Thursday, fell to $4714.5 in the midday US trading session on Friday, a daily decline of nearly 12%. Spot gold approached $4670 in the midday US trading session, a daily decline of over 12.7%. By the close of the US stock market midday session, COMEX February gold futures fell 11.37% to $4,713.9 per ounce, marking the largest single-day drop since January 22, 1980. COMEX February silver futures fell 31.35% to $78.29 per ounce, the largest closing drop since March 27, 1980. Industrial metals were also not spared. LME copper, which surged to a record high of $14,520 on Thursday, rising 11%, fell below $12,850 during Friday's trading session, dropping nearly 5.7% on the day, before closing down about 3.4% at $13,158 per tonne. LME tin also closed down about 5.7%, while LME aluminum and nickel fell by more than 2%. The market sell-off was triggered by the news of Warsh's nomination. Gold prices, which had previously hit record intraday highs for nine consecutive trading days, immediately reversed course and fell after reports surfaced in early Asian trading on Friday that Trump would nominate Warsh as Federal Reserve Chairman. On Friday before the US stock market opened, Trump officially announced his nomination on his social media account, stating that he had known Warsh for a long time and had no doubt that Warsh would be among the greatest Federal Reserve chairs, perhaps even the best. Warsh was previously known for his hawkish stance, but changed his tune last year, responding to Trump's calls for significant interest rate cuts, which is considered key to his nomination. Wall Street investors and strategists said that Trump's choice of Warsh to lead the Fed is a relatively hawkish one, as he is likely to resist balance sheet expansion, which would support the dollar and steepen the US Treasury yield curve. Panmure Liberum analyst Tom Price stated: "The market believes Kevin Warsh is rational and won't actively push for rate cuts. Ordinary investors with diverse objectives—such as capital protection—are taking profits." Warsh's nomination fueled a major dollar rebound, posting its best single-day performance in six months since July of last year. The ICE Dollar Index, which tracks the dollar against a basket of currencies, broke through 97.10 in midday trading on Friday, rising nearly 0.9% on the day. A stronger dollar has reduced the attractiveness of dollar-denominated commodities to many global buyers and undermined the theory that precious metals could replace the dollar as the global reserve currency. Market congestion triggers a stampede. While Warsh's nomination was the catalyst for the sell-off, analysts generally believe that technical factors amplified the decline. Media outlets believe that soaring prices and volatility have put pressure on traders' risk models and balance sheets. A Goldman Sachs report points out that the record wave of call option buying "mechanically reinforced the upward price momentum" as option sellers hedged their exposure by buying more futures. The decline in gold prices may be accelerated by a so-called "gamma squeeze." This refers to the need for option traders to buy more futures to balance their portfolios when prices rise and to sell when prices fall. For the SPDR Gold ETF, a large number of positions expiring on Friday are concentrated at $465 and $455, while on Comex, large numbers of March and April option positions are concentrated at $5300, $5200, and $5100. Miller Tabak equity strategist Matt Maley stated, “This is insane. Most of this is probably a ‘forced sell.’ Silver has recently been the hottest asset for day traders and other short-term traders, so it has accumulated some leverage. With today’s sharp drop, margin calls were issued.” Pepperstone’s Michael Brown noted, “The metals market has been very bubbly for some time, and signs earlier this week indicated that things are getting completely out of control.” He stated that positions in the gold and silver markets are “clearly extremely crowded on the long side, and volatility has increased to frankly absurd levels.” In a market with such high trading volume and tight leveraged long positions, "it doesn't take much to trigger" Friday's move. Brown stated, "Simply put, everyone was rushing to the exit simultaneously, forcing prices lower, which in turn triggered further forced selling," a reminder that "momentum is two-way." Christopher Wong, a strategist at Overseas-Chinese Banking Corp., said gold's movement "validates the warning that what goes up must come down." While the Walsh nomination report was a trigger, he said the pullback was long overdue, "It's like one of those excuses the market's been waiting for to unwind those parabolic moves."

Technical indicators had already issued warnings

Before the crash, multiple technical indicators had already issued warning signals. The Relative Strength Index (RSI) in recent weeks indicated that gold and silver may have been overbought and faced a pullback. Gold's RSI recently hit 90, the highest level for the precious metal in decades. Dominik Sperzel, head of trading at Heraeus Precious Metals, said volatility was extremely high, with the psychological resistance levels of $5,000 and $100 being breached multiple times on Friday. "However, we need to be prepared for the rollercoaster to continue." Despite Friday's sharp drop, gold and silver still recorded considerable gains in January. Based on the closing price of the front-month contract, New York gold futures rose about 9% in January, while silver futures rose more than 10%. COMEX February gold futures rose 8.98% in January, the largest monthly gain in four months, marking six consecutive months of gains, the longest winning streak since October 2024. COMEX February silver futures rose 11.63% in January, marking their ninth consecutive month of gains, the longest monthly winning streak. The nine-month gain totaled 140.66%, the largest nine-month increase since April 2011. Analysts at Commerzbank wrote in a Friday report that the extent of the pullback "indicates that market participants are simply waiting for an opportunity to take profits after a rapid price increase." Thu Lan Nguyen, head of commodities research at the bank, noted that although "the market perceives Warsh as more hawkish than Hassett and other candidates," "we still believe that the Fed is very likely to succumb to pressure to some extent, and the rate cut will be larger than the market currently expects." Mining stocks subsequently plummeted. The plunge in precious metals dragged down the share prices of major mining companies. On Friday, U.S.-listed gold mining giants Newmont (NEM), Barrick Mining (B), and Agnico Eagle Mines (AEM) all fell by more than 10%, while Coeur Mining (CDE) fell nearly 19% at one point. Silver ETFs suffered even greater losses. During trading, ProShares Ultra Silver (AGQ) plunged over 60%, and iShares Silver Trust ETF (SLV) fell over 30%, both marking their worst single-day performances in history. Gold ETFs also came under pressure. While mining stocks plummeted on Friday, some analysts believe the pullback is beneficial to the market's health. Nate Miller, Vice President of Product Development at Amplify ETFs, stated that silver benefited from safe-haven and value storage demand, industrial demand, and global supply shortages, and that some consolidation after such a sharp rise "is healthy and consistent with typical performance in commodity markets after rapid price appreciation." Peter Grant, Vice President and Senior Metals Strategist at Zaner Metals, said that while the rebound has indeed gone too fast and too far, it's not too late to buy metals now. He called a drop below $100 an "opportunity," especially around the 20-day moving average of $93. However, "you have to be able to withstand volatility, which could remain high for some time." Bloomberg macro strategist Simon White points out: "The silver/gold (price) ratio has climbed almost as much as it did in the late 1970s, and today's dramatic move suggests this may mark a rejection point. However, individually, gold and silver have never quite matched the 1979 rally. It's too early to conclude whether silver relative to gold signals the end of the historic rally in precious metals. Price is now the primary driver, with fundamentals taking a backseat for now." style="text-align:center">