After one of the most dramatic sell-offs in modern commodity trading, precious metals are attempting to find their footing — but the scars from last week’s historic rout are still fresh.
Gold and silver clawed back some ground during Asian trading hours, stabilizing after a brutal unwinding of a rally that had pushed prices to levels few traders believed possible just weeks ago. The rebound, however, comes more as a pause than a declaration of victory.
Spot gold was still down about 2.5%, hovering near $4,771 an ounce, after plunging as much as 10% on Friday — its worst one-day collapse in more than a decade. Silver, which suffered an even more violent reversal, eased to around $83.99 an ounce, down 1.4% after tumbling 16% earlier and recording a record intraday drop.
From Euphoria to Panic in Days
The speed of the reversal stunned even seasoned metals traders.
Gold and silver had surged to record highs in recent months as investors rushed into hard assets, driven by fears of geopolitical instability, currency debasement, and perceived threats to the Federal Reserve’s independence. January’s rally was turbocharged by speculative buying from China, turning an already hot market into a pressure cooker.
“The trade was way too crowded,” said Robert Gottlieb, a former JPMorgan precious metals trader. When everyone rushed for the exit at once, liquidity vanished.
That exit came abruptly on Friday.
The Spark: Trump’s Fed Pick Changes the Narrative
The catalyst for the collapse was political — and instantaneous.
News that President Donald Trump would nominate Kevin Warsh as the next Federal Reserve chair sent the U.S. dollar sharply higher. Traders who had bet on a weaker greenback suddenly found themselves on the wrong side of the trade.
Warsh is widely viewed as the most aggressive inflation fighter among the final candidates, fueling expectations of tighter monetary policy. A stronger dollar is kryptonite for dollar-priced bullion, and sentiment flipped in a matter of hours.
“Most buyers sitting on profits already had one foot out the door,” said Jia Zheng, head of trading at Shanghai Soochow Jiuying Investment Management. Once prices turned, selling fed on itself.
Leverage Turns a Pullback Into a Rout
What might have been a healthy correction quickly became a cascade.
Record call-option buying had forced dealers to hedge aggressively by purchasing physical metals and futures, amplifying the rally on the way up. When prices reversed, those hedges had to be dumped just as aggressively.
Leverage made matters worse. Margin calls hit futures traders, while leveraged exchange-traded products were forced into rapid rebalancing. The two-times leveraged ProShares Ultra Silver (AGQ) alone triggered an estimated $4 billion in silver futures selling as it unwound positions to reflect falling prices.
“Limited liquidity and high leverage significantly amplified the downside,” said Dominik Sperzel of Heraeus Precious Metals.
China Becomes the Market’s Wild Card
Now, attention is shifting east.
Chinese investors have historically been aggressive buyers on dips, and early signs suggest that pattern may be repeating. While Shanghai prices continued to fall, they still traded at a premium to international benchmarks. Over the weekend, crowds reportedly flooded bullion markets in Shenzhen, snapping up jewelry and bars ahead of the Lunar New Year.
Still, volatility and the holiday season may temper short-term risk-taking. Analysts expect traders to reduce exposure, even as retail demand provides a cushion under prices.
“The pullback could actually support physical buying during peak season,” said Zijie Wu of Jinrui Futures.
Long-Term Bull Case Still Intact?
Despite the chaos, some investors remain steadfast.
Central banks continue to accumulate gold as a reserve asset immune to sanctions and asset freezes — a structural bid that has underpinned bullion’s multi-year ascent. While speculative flows overtook official buying during the rally’s final phase, the presence of large, long-term buyers is offering reassurance.
“Gold’s thematic drivers remain positive,” Deutsche Bank analyst Michael Hsueh said, reiterating an ambitious $6,000-an-ounce long-term target. In his view, the current turbulence looks more like a violent reset than the end of the bull market.
Silver’s outlook is murkier. The collapse shattered the belief in a one-way rally, and analysts warn that easing Chinese demand and increased willingness to deliver physical metal could weigh further on prices.
A Market Still on Edge
For now, precious metals are caught between bargain hunters and traumatized speculators.
The Bloomberg Dollar Spot Index was flat after jumping nearly 1% in the prior session, offering little directional clarity. Platinum and palladium also edged lower, underscoring the broader uncertainty.
What’s clear is that the age of calm, orderly gains is over — at least for now.
Gold and silver may yet shine again, but after last week’s historic whiplash, traders are learning a painful lesson: when everyone believes a rally can’t fail, that’s often when it does.