Gold and silver experience an epic crash! What just happened?

U.S. President Trump’s nomination of Kevin Warsh to serve as Federal Reserve Chair has triggered the most severe gold and silver sell-off in decades.

Original author: Wall Street Insights

On Thursday, gold and silver prices hit record highs during intraday trading before plunging. After news broke on Friday morning in Asia that Trump would nominate Warsh as Fed Chair, gold prices turned downward. European stocks fell below $5,000 per ounce during the session, and U.S. stocks extended losses at midday. Spot gold intraday decline approached 13%, the largest since the early 1980s, surpassing the drop during the 2008 financial crisis.

Silver, which first broke above $120 on Thursday, fell below $100 during European trading on Friday, and during U.S. trading, it briefly dropped below $80. Spot silver plunged over 35% intraday, marking the largest decline on record. This “bloodbath” affected the entire metals market, with copper futures reaching a record high of over $14,520 per ton on Thursday before falling nearly 6% back.

The market attributes this sharp decline to a sudden shift in investor expectations regarding Fed policy.

Warsh is known for his hawkish stance, though he recently publicly supported rate cuts to accommodate Trump. Nonetheless, the market believes it’s unlikely he will aggressively cut rates.

Thu Lan Nguyen, an analyst at Deutsche Bank, said, “The market perceives Warsh as more hawkish than other candidates like Hasset.” This expectation helped the dollar rebound, reducing the appeal of dollar-denominated commodities to global buyers.

Warsh’s nomination also eased concerns about the Fed losing independence.

Previously, investors flocked to precious metals as safe havens, partly due to fears of currency devaluation and Fed independence.

ING FX strategist Francesco Pesole said, “Warsh’s selection is good news for the dollar, as it can dispel some worries about more dovish candidates.”

This sell-off also exposed the extreme fragility of the precious metals market.

Following recent consecutive surges 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.

Michael Brown, senior strategist at Pepperstone, said, “The market is very bubble-like now; just a small trigger could spark such a move.”

Gold and Silver Experience Historic Plunge

During the midday session on Friday, the precious metals market staged a dramatic plunge. After reaching a record high of $121.785 on Thursday, the NY silver futures contract fell below $80, briefly dropping to $74, a decline of over 35% intraday. Spot silver broke below $74.60, down 35.5% for the day, the largest intraday decline on record.

Gold also suffered heavy losses. After reaching a record high of $5,586.20 on Thursday, NY gold futures fell to $4,714.50 during midday on Friday, nearly a 12% drop. Spot gold approached $4,670 during U.S. trading, down over 12.7% intraday.

By midday, gold futures for February on COMEX closed down 11.37%, at $4,713.9 per ounce, the largest single-day decline since January 22, 1980. Silver futures for February on COMEX fell 31.35%, to $78.29 per ounce, the largest closing decline since March 27, 1980.

Industrial metals were not spared. Copper, which surged past $14,520 and hit a record high with an 11% gain on Thursday, fell below $13,800 during Friday’s session, down nearly 5.7% intraday, and closed down about 3.4% at $13,158 per ton. Tin, aluminum, and nickel also declined over 2%.

Hawkish Fed Nomination

The trigger for the sell-off was the news of Warsh’s nomination.

Early Friday in Asia, reports emerged that Trump would nominate Warsh as Fed Chair, causing gold, which had hit nine consecutive intraday record highs, to immediately turn downward.

Before the U.S. stock market opened on Friday, Trump officially announced the nomination via social media, stating he has known Warsh for a long time and has no doubt he will become a great Fed Chair, possibly the best one.

Warsh is known for his hawkish stance, but last year he shifted tone in response to Trump’s calls for significant rate cuts, which was seen as a key factor in his nomination.

Wall Street investors and strategists say Trump’s choice of Warsh to lead the Fed is a relatively hawkish move, likely resisting balance sheet expansion, which would support the dollar and steepen the U.S. Treasury yield curve.

Tom Price, analyst at Panmure Liberum, said:

“The market perceives Kevin Warsh as rational; he is unlikely to actively push for rate cuts. Ordinary investors with different goals—such as capital preservation—are taking profits.”

Warsh’s nomination triggered a strong rebound in the dollar, marking the best single-day performance since July last year. The ICE dollar index, tracking the dollar against a basket of currencies, broke above 97.10 during midday on Friday, up nearly 0.9% intraday. A stronger dollar reduces the attractiveness of dollar-denominated commodities for many global buyers and undermines the theory that precious metals could replace the dollar as the world’s reserve currency.

Market Crowding Triggers “Stampede”

While Warsh’s nomination was the immediate catalyst for the sell-off, analysts generally believe technical factors amplified the decline.

Media reports suggest that soaring prices and volatility have strained traders’ risk models and balance sheets. A Goldman Sachs report noted that the record wave of bullish options buying “mechanically reinforced upward price momentum,” as options sellers hedge their exposure by buying more futures.

The decline in gold may have been accelerated by what’s called a “gamma squeeze,” which occurs when options traders buy more futures to hedge as prices rise, and sell as prices fall.

For the SPDR Gold ETF, large positions expiring on Friday were concentrated around $465 and $455, while on COMEX, large options positions for March and April were centered around $5,300, $5,200, and $5,100.

Matt Maley, chief market strategist at Miller Tabak, said, “This is crazy. Most of it is probably ‘forced selling.’ Silver has been the hottest asset for day traders and short-term traders lately, so it has some leverage. With today’s sharp decline, margin calls have gone out.”

Michael Brown of Pepperstone said, “The market has been extremely bubble-like for some time, and signs earlier this week indicated things were becoming completely disorderly.” He added that positions in gold and silver are “extremely crowded on the long side, and volatility has increased to frankly ridiculous levels.” In a market with such high trading volume and tight leverage, “it doesn’t take much to trigger a move like Friday’s.”

Brown explained, “Simply put, everyone is rushing for the exits at the same time, forcing prices lower, which in turn triggers further forced selling,” reminding that “momentum is two-way.”

Christopher Wong, strategist at Oversea-Chinese Banking Corp., said that the gold price action “confirms the warning signs of rapid gains and rapid declines.” While the news of Warsh’s nomination was the trigger, he believes the correction was overdue, “like one of those excuses the market has been waiting for to close out parabolic moves.”

Technical Indicators Have Already Warned

Before the plunge, multiple technical indicators issued warning signals. The Relative Strength Index (RSI) over the past few weeks indicated that gold and silver might be overbought and due for a correction. Recently, gold’s RSI hit 90, the highest in decades for this precious metal.

Dominik Sperzel, head of trading at Heraeus Precious Metals, said volatility was extremely high, with the psychological resistance levels of $5,000 and $100 repeatedly broken on Friday. “But we need to be prepared for the rollercoaster to continue.”

Despite the sharp drop on Friday, gold and silver still posted significant gains for January. Based on the closing prices of the front-month contracts, NY gold for January rose about 9%, and silver gained over 10%.

COMEX February gold futures for January increased 8.98%, the largest monthly gain in four months, marking six consecutive months of gains—the longest streak since October 2024. COMEX February silver futures for January gained 11.63%, marking nine consecutive months of gains, with a total increase of 140.66% over nine months, the largest nine-month rise since April 2011.

Deutsche Bank analysts wrote in their Friday report that the extent of the correction “indicates that market participants are simply waiting for an opportunity to take profits after rapid price increases.” Thu Lan Nguyen, head of commodities research at the bank, noted:

“Although the market perceives Warsh as more hawkish than other candidates like Hasset, we still believe the Fed is likely to yield somewhat to pressure, and rate cuts could exceed current market expectations.”

Mining stocks also tumbled

The sharp decline in precious metals dragged down major mining companies’ stocks. During Friday’s session, U.S.-listed gold giants Newmont (NEM), Barrick Gold (B), and Agnico Eagle Mines (AEM) all fell over 10%, with Coeur Mining (CDE) dropping nearly 19%.

Silver ETFs suffered even larger hits. During the session, ProShares Ultra Silver (AGQ) fell over 60%, and iShares Silver Trust ETF (SLV) dropped over 30%, both posting their worst single-day performances ever. Gold ETFs also came under pressure.

Although mining stocks plunged on Friday, some analysts believe the correction is healthy for the market. Nate Miller, VP of product development at Amplify ETFs, said that silver benefits from safe-haven demand, store of value, industrial demand, and global supply shortages. He added that some consolidation after such a sharp rise “is healthy and typical of commodity markets after rapid price appreciation.”

Peter Grant, vice president and senior metals strategist at Zaner Metals, said that while the rebound was “too fast and too far,” it’s still a good opportunity to buy metals now. He called the break below $100 an “opportunity,” especially near the 20-day moving average around $93. However, he warned, “You need to be able to tolerate volatility, which could stay elevated.”

Bloomberg macro strategist Simon White said:

“The rally in the silver/gold ratio has almost matched the late 1970s, and today’s dramatic move could mark a rejection point. But looking at gold and silver alone, they have never fully matched the 1979 rally so far. Whether silver relative to gold signals the end of the historic precious metals rally is too early to tell. Prices are now the main driver, and fundamentals will take a back seat for now.”