Gold and Silver Suffer Dramatic Selloffs
On Friday, 31st January, the metals market saw prices plummet with gold recording a fall of 12%, reflecting its biggest slump since the 1980s. Silver also recorded a fall of 36% (a drop of $40 in less than 20 hours), a record for intraday trading.
The 2025 Bull Run and the Debasement Trade
Throughout 2025, both gold and silver enjoyed successful bull runs culminating in record prices driven up by threats to the Federal Reserve’s independence, geopolitical and geoeconomic turmoil, currency debasement trades* and latterly a massive buying spree by Chinese investors. *The Debasement Trade – A financial strategy where investors divest themselves of fiat currencies and sovereign bonds, and invest in hard assets such as precious metals like gold and silver. Key takeaways are rising sovereign or government debt, geopolitical instability, and inflation. Experts advise that investors have been selling major currencies and running to alternative assets such as gold (both physical and ETF), silver, Bitcoin, and even some collectables such as Pokémon cards, which recently reached an all-time high.
The Catalyst: A Shift in Federal Reserve Leadership
Experts advise that the start of the collapse in gold and silver prices was due to President Donald Trump announcing that his pick for the new chair of the Federal Reserve would be Kevin Warsh. Analysts suggest that the financial markets see Warsh as extremely tough on inflation, which gave the markets an expectation of tighter monetary policy, also driving the US Dollar higher on the day. Precious metals spiked recently due to a weak dollar, which Donald Trump has openly favoured. This high price triggered a wave of selling, led by Chinese investors jumping in to cash out and take their profits.
Market Leverage and Rapid Liquidations
Many experts had already expounded the theory that the metals market was due for a price correction, but financial commentators said that even the experts were taken by surprise as the correction was amazingly fast, exemplified by gold, which at one point dropped $200 in roughly ten minutes. At the beginning of the year, many analysts had warned that precious metals would face volatility in 2026, but little did they know it would appear so soon and with such rapidity. Analysts also advised that the gold and silver markets were highly leveraged, so when the selling began, the unwinding of the leveraged bets created a tsunami of selling, and liquidity disappeared.
Current Recovery and 2026 Outlook
As of today, both gold and silver have staged a significant recovery, with gold breaking through the psychological barrier of $5,000, hitting $5,084.99. Silver has recovered by over 5% to $90 per ounce, mainly due to those investors buying the dip. Silver also remains supported by strong industrial demand and structural supply deficits. Demand for haven assets has also rebounded after the US Military yesterday shot down an Iranian drone over the Arabian Sea.
Experts suggest that both metals are expected to face volatility, and prices will continue to move upwards during 2026, but not at the pace of the recent bull rally. However, political uncertainties in the lead up to mid-term elections in November, plus the direction of interest rates under a Federal Reserve led by Kevin Warsh, may well cloud predictions in the coming months.
