Gold and Silver Plunge to Historic Lows—What Happened?
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Gold and Silver Plunge to Historic Lows—What Happened?
U.S. President Trump’s nomination of Kevin Warsh as Federal Reserve Chair triggered the most severe sell-off in precious metals in decades.
Navigating Web3 tides with focused insightsOn Thursday, gold and silver both plunged sharply, hitting intraday record highs before collapsing. After news broke on Friday’s Asian trading session that Trump would nominate Walsh as Federal Reserve Chair, gold immediately turned downward. By European trading hours, it had already fallen below the $5,000/ounce threshold; during U.S. midday trading, its decline widened further. Spot gold dropped nearly 13% intraday—the steepest intraday fall in over forty years since the early 1980s—and exceeded the跌幅 seen during the 2008 financial crisis.
Silver, which surged above $120 for the first time ever on Thursday, fell below $100 during Friday’s European session and dipped below $80 during U.S. trading hours. Spot silver plunged more than 35% intraday—the largest single-day drop on record. This “bloodbath” swept across the entire metals market: London copper, which also hit an all-time high on Thursday, retreated nearly 6%.
Markets attributed this sharp sell-off to a dramatic shift in investor expectations regarding Fed policy.
Walsh has long been known for his hawkish stance. Although he recently voiced public support for rate cuts to align with Trump’s preferences, markets still believe he is unlikely to pursue aggressive easing.
Thu Lan Nguyen, analyst at Commerzbank, stated: “The market views Walsh as more hawkish than other candidates such as Hassett.” This expectation spurred a dollar rebound, reducing the appeal of dollar-denominated commodities to global buyers.
Walsh’s nomination also alleviated market concerns about a potential loss of Fed independence.
Earlier, investors had flocked into precious metals for safe-haven purposes, partly driven by fears of currency depreciation and diminished Fed independence.
Francesco Pesole, FX strategist at ING, said Walsh’s selection was “good news for the dollar and helps dispel some concerns about more dovish alternatives.”
This crash also exposed the extreme fragility of the precious metals market.
After recent consecutive surges in gold and silver prices, crowded long positions, record-high call option purchases, and extremely elevated leverage levels left the market vulnerable to a so-called “gamma squeeze.”
Michael Brown, Senior Research Strategist at Pepperstone, remarked: “The market had become highly bubbly—only a small catalyst was needed to trigger such a move.”
Historic Collapse in Gold and Silver
During Friday’s U.S. midday trading session, precious metals experienced a dramatic plunge. After hitting a record high of $121.785 on Thursday, the front-month NY silver futures contract fell below $80—reaching as low as $74—and posted an intraday decline slightly exceeding 35%. Spot silver dropped below $74.60, registering a 35.5% intraday fall—the largest on record.
Gold suffered similarly. After peaking at $5,586.20 intraday on Thursday, NY gold futures fell to $4,714.50 during Friday’s U.S. midday session—a nearly 12% intraday drop. Spot gold approached $4,670 during U.S. midday trading, falling more than 12.7% intraday.
By the close of Friday’s U.S. midday session, COMEX February gold futures settled down 11.37% at $4,713.90/ounce—the largest single-day decline since January 22, 1980. COMEX February silver futures closed down 31.35% at $78.29/ounce—the largest closing decline since March 27, 1980.
Industrial metals were not spared either. London copper, which surged past $14,520 per tonne on Thursday—reaching an all-time high and rising 11%—fell below $12,850 during Friday’s session, dropping nearly 5.7% intraday and closing down roughly 3.4% at $13,158/tonne. At session close, LME tin declined approximately 5.7%, while aluminum and nickel each fell over 2%.
Fed Chair Nominee Leans Hawkish
The catalyst for the market selloff was the announcement of Walsh’s nomination.
News broke early Friday in Asia that Trump would nominate Walsh as Fed Chair, prompting gold—which had set nine consecutive intraday record highs—to reverse course immediately.
Ahead of U.S. equities’ pre-market open, Trump officially announced the nomination on his social media platform, stating he had known Walsh for a long time and had no doubt he would rank among the greatest Fed Chairs—and possibly even the greatest of all time.
Walsh had previously built a reputation as a hawk but shifted his tone last year to echo Trump’s calls for substantial rate cuts—a move widely viewed as key to securing the nomination.
Wall Street investors and strategists say Trump’s choice of Walsh to lead the Fed represents a relatively hawkish decision. Walsh is expected to resist balance sheet expansion, supporting the dollar and steepening the U.S. Treasury yield curve.
Tom Price, analyst at Panmure Liberum, stated:
“The market sees Kevin Walsh as rational—he won’t actively push for rate cuts. Ordinary investors with diverse objectives—such as capital preservation—are now taking profits.”
Walsh’s nomination triggered a major dollar rebound—Friday marked the greenback’s strongest single-day performance in six months, since last July. The ICE U.S. Dollar Index, tracking the dollar against a basket of currencies, rose above 97.10 during Friday’s U.S. midday session, gaining nearly 0.9% intraday. A stronger dollar reduced the appeal of dollar-denominated commodities to many global buyers and undermined theories suggesting precious metals might replace the dollar as the world’s reserve currency.
Crowded Positions Triggered a Stampede
Although Walsh’s nomination served as the spark for the selloff, analysts broadly agree technical factors amplified the declines.
Media reports suggest 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 hedged their exposure by purchasing more futures.
Gold’s decline may have been accelerated by a so-called “gamma squeeze”—a phenomenon where options dealers must buy more futures to hedge rising prices, and conversely sell futures when prices fall.
For the SPDR Gold ETF, a large volume of expiring positions on Friday was concentrated at $465 and $455, while substantial options positions on COMEX for March and April expiry clustered around $5,300, $5,200, and $5,100.
Matt Maley, equity strategist at Miller Tabak, said: “It’s insane. Much of this is likely ‘forced selling.’ Silver has recently been the hottest asset for day traders and other short-term players, thus accumulating significant leverage. Today’s sharp decline triggered margin calls.”
Pepperstone’s Michael Brown pointed out that “market conditions in metals have been highly bubbly for some time, and signs earlier this week indicated things were becoming completely disordered.” He added that positioning in gold and silver markets was “clearly extremely crowded on the long side, while volatility had risen to frankly absurd levels.” In such a high-volume, highly leveraged long market, “very little was needed to trigger Friday’s move.”
Brown added: “Simply put, everyone rushed for the exit simultaneously, forcing prices lower—which in turn triggered further forced selling,” reminding us that “momentum works in both directions.”
Christopher Wong, strategist at Overseas-Chinese Banking Corp., said gold’s movement “validates the warning that what goes up fast comes down fast.” While news of Walsh’s nomination acted as the trigger, he believes the correction was long overdue: “It’s one of those excuses the market had been waiting for to unwind these parabolic moves.”
Technical Indicators Had Already Sounded the Alarm
Multiple technical indicators had already flashed warning signals ahead of the crash. The Relative Strength Index (RSI) showed gold and silver were likely overbought and due for a pullback. Gold’s RSI recently reached 90—the highest level for the metal in decades.
Dominik Sperzel, Head of Trading at Heraeus Precious Metals, said volatility was extremely intense, with psychological resistance levels of $5,000 and $100 breached multiple times on Friday—“though we need to brace ourselves for continued roller-coaster action.”
Despite Friday’s sharp plunge, gold and silver posted solid gains in January. Based on front-month contract closing prices, NY gold futures rose ~9% in January, while silver futures gained over 10%.
COMEX February gold futures rose 8.98% for the month—the largest monthly gain in four months—and extended a six-month winning streak, the longest since October 2024. COMEX February silver futures rose 11.63% for the month—extending a nine-month winning streak, the longest on record—and gained 140.66% over those nine months—the largest nine-month gain since April 2011.
Commerzbank analysts wrote in their Friday report that the magnitude of the correction “suggests market participants were merely waiting for an opportunity to take profits after rapid price gains.” Thu Lan Nguyen, the bank’s Head of Commodities Research, noted:
While “the market views Walsh as more hawkish than other candidates such as Hassett,” “we still believe the Fed is likely to yield somewhat to pressure, cutting rates by more than the market currently expects.”
Miners Plunge Alongside Metals
The precious metals collapse dragged down major mining company stocks. During Friday’s session, U.S.-listed gold mining giants Newmont (NEM), Barrick Gold (GOLD), and Agnico Eagle Mines (AEM) each fell over 10%, while Coeur Mining (CDE) briefly dropped nearly 19%.
Silver ETFs suffered even more severely. During Friday’s session, ProShares Ultra Silver (AGQ) plunged over 60%, while iShares Silver Trust ETF (SLV) fell over 30%—both marking their worst single-day performances on record. Gold ETFs faced similar pressure.
Although mining stocks crashed hard on Friday, some analysts view the correction as healthy for the market. Nate Miller, VP of Product Development at Amplify ETFs, said silver benefits from safe-haven and store-of-value demand, industrial demand, and global supply shortages—and some consolidation after such a sharp rally “is healthy and typical of commodity markets following rapid price appreciation.”
Peter Grant, VP and Senior Metals Strategist at Zaner Metals, said although the rally had indeed gone too far too fast, it’s still not too late to buy metals. He described the break below $100 as “an opportunity,” especially near the 20-day moving average of around $93. However, “you must be able to withstand volatility, which is likely to remain elevated.”
Simon White, Macro Strategist at Bloomberg, observed:
“The rise in the silver/gold ratio has been nearly as large as in the late 1970s, and today’s dramatic move suggests this may mark a rejection point. Still, taken individually, neither gold nor silver has fully matched the 1979 rally so far. Whether silver relative to gold signals the end of this historic precious metals rally is too early to conclude. Prices are now the primary driver, with fundamentals temporarily taking a back seat.”
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