Gold and silver plummeting from high levels: is it a brief correction or the start of a trend reversal?
Affected by expectations of changes in Federal Reserve personnel and profit-taking pressure, the precious metals market suffered a sharp sell-off on Friday, with gold and silver prices retreating significantly from historical highs, ending the previous unstoppable streak of record-setting rallies. This sudden reversal indicates that after a “melt-up” style unilateral rise, the market’s sensitivity to marginal changes in monetary policy has significantly increased.
According to Wallstreetcn, market sources say U.S. President Trump plans to nominate Kevin Warsh as Federal Reserve Chairman, and this news became the key catalyst triggering the reversal in market risk appetite. As Warsh is well known for his hawkish stance, investors rapidly repriced the Fed’s future policy path, strengthening the dollar index and pushing up U.S. Treasury yields, which directly suppressed the appeal of the interest-free precious metals assets.
As a result, spot gold prices plummeted 6% in one day, falling to around $5,055 per ounce, while spot silver suffered an even more severe drop, plunging more than 13% and breaking below the $100/oz mark.
This deep correction has attracted strong attention from investors: Is this merely a healthy adjustment within a bull market, or does it imply that the rally logic driven by geopolitical and fiscal uncertainty has fundamentally reversed? Most analysts believe that although long-term drivers remain intact, the short-term technical extreme overbought conditions and hawkish shift in policy expectations are forcing the market into a period of sharp consolidation.
Warsh Ignites Hawkish Expectations + Government Shutdown Fears Ease
The immediate trigger for this market move came from policy signals out of Washington. According to media reports, the Trump Administration is preparing to nominate Kevin Warsh as Fed Chair, with a formal announcement planned for Friday morning Eastern Time. Warsh’s nomination is interpreted by the market as a strengthening of the Fed’s anti-inflation stance.
Bloomberg strategist Brendan Fagan pointed out that the assessment of a Fed under Warsh begins with his track record, which is a positive signal for a U.S. market facing rising risk premiums. Fagan noted that although Warsh’s appointment itself does not directly mean an immediate shift in monetary policy, it will substantively improve the market’s view of Fed independence, alleviating concerns that the central bank might succumb to political pressures or rationalize inflation. This restoration of confidence strongly supports the dollar and directly pressures dollar-denominated commodities.
Additionally, Ed Yardeni, president of Yardeni Research, analyzed that since Democrats and Republicans have reached a temporary agreement to avoid a government shutdown, market concerns about a U.S. fiscal cliff have eased, which partially contributed to the sell-off.
Inevitable Correction After the “Melt-Up”
Before the crash, the surge in gold prices was mainly driven by geopolitical tensions, economic and trade uncertainty, and a weak dollar. However, the rapid pace of gains also built up enormous risk of a pullback.
Yardeni analyzed that the gold price previously soared from $3,000 to $5,500 with almost no significant correction, resembling more of a “melt-up” than a traditional bull market rhythm. Yardeni said that in a bull market, prices pulling back to $5,000 and consolidating near that level is normal market behavior.
Regarding the structure of the decline, Gregor Gregersen, founder of precious metals dealer Silver Bullion, pointed out its unusual nature. He believes that institutional orderly profit-taking usually involves gradually reducing positions for optimal prices, but Friday’s price collapse happened in a very short time and lacked obvious public drivers beforehand, suggesting that this drop may not be mere profit-taking, and deliberate selling pressure cannot be ruled out.
From a technical perspective, precious metals had previously entered a severely overbought zone, making a correction inevitable. Manpreet Gill, CIO for Europe, Africa, and the Middle East at Standard Chartered, noted that the bank’s proprietary signals showed both gold and silver were in overbought territory, with very tense short-term technical conditions.
eToro market analyst Zavier Wong also added that gold’s Relative Strength Index (RSI) had previously exceeded 90, far above the usual overbought warning line of 70, making the price very vulnerable to a pullback. Gill further noted that the gold-silver ratio recently approached an extremely low level of about 31, which last appeared in 2011 and historically often signals the onset of a consolidation period. He expects that under these circumstances, gold may experience a relatively mild consolidation, while the more volatile silver could see larger price swings.
Long-Term Bullish Logic Intact—Is the Correction a Buying Opportunity?
Although there has been a sharp short-term setback, several analysts believe the structural factors supporting the rise in precious metals—such as geopolitical risks, fiscal uncertainty, and concerns about currency devaluation—have not disappeared.
Afdhal Rahman, Executive Director of OCBC Wealth Advisory, believes that investors have not missed the trading opportunity; although the recent rapid gains have elevated short-term correction risks, the structural drivers behind the current rally remain intact. However, he cautioned that, since prices are still high (gold is up about 20% year-to-date and silver more than 50%), the current margin of safety has narrowed substantially, so it is wiser not to invest all at once, but to accumulate positions in stages.
Standard Chartered maintains a long-term bullish view on gold and recommends holding overweight positions in balanced portfolios. Gill advises that investors who are under-allocated can use the pullback as an opportunity to build toward their target levels. Regarding instruments, both Gill and Heidi Sum, global head of DWS Liquid Real Assets, recommend that ETFs backed by physical assets are suitable for investors seeking liquidity and transparency, while physical gold suits those focusing on long-term wealth preservation.
Risk Warning and DisclaimerThe market is risky, and investment should be made cautiously. This article does not constitute personal investment advice and does not consider individual users’ unique investment goals, financial status, or needs. Users should consider whether the opinions, views, and conclusions in this article are appropriate for their specific situation. Investing accordingly is at your own risk.
