Editor’s Note
This article discusses a sudden, sharp reversal in precious metals markets following political news. While the event was significant, readers should note that market reactions to personnel speculation are often volatile and can reverse again upon official confirmation or denial. Always consult multiple sources and consider long-term trends when making investment decisions.
The precious metals markets saw a sharp reversal following Donald Trump’s announcement of his intention to nominate Kevin Warsh to lead the U.S. Federal Reserve, replacing Jerome Powell. This prospect, which still needs to be confirmed by the U.S. Senate, triggered a massive wave of selling in gold and silver after several weeks of sustained gains. On Friday, within a matter of minutes, both metals recorded declines of a magnitude rarely seen, sending shockwaves through the entire financial markets.
The price of gold per ounce fell by more than 12%, dropping back below the $5,000 threshold. This marks its largest single-day decline since the early 1980s, a move even more pronounced than during the 2008 financial crisis. Silver underwent an even more violent correction, with a drop close to 36%, returning to around $75 per ounce after having exceeded $120 just days before.
According to analysts at Natixis, gold posted its biggest fall since 2008, while silver recorded the largest single-day decline ever observed. Selling pressure continued into the beginning of the week, with gold falling another 5% and silver nearly 9%.
The anticipated appointment of Kevin Warsh as Fed Chair acted as a catalyst. A former governor of the U.S. central bank, he is seen as less accommodative than other mentioned candidates. This perceived more restrictive stance reassured investors about the Fed’s independence and led to a rapid rebound of the dollar against major currencies.
The rise of the dollar, combined with massive profit-taking, thus accelerated the price correction after a phase of gains deemed excessive by several observers.
The downward move was accentuated by the CME Group’s decision to raise margin requirements for precious metals futures contracts. Required margins for gold are increased from 6% to 8%, while those for silver rise from 11% to 15%. Platinum and palladium futures contracts are also affected.
This increase in margin requirements reduces liquidity and forces investors using high leverage to liquidate part of their positions. According to Reuters, some operators were forced to sell other assets to meet margin calls, contributing to the spread of volatility across all markets.
The fall in precious metals led to a broad-based decline in equity markets, particularly in commodity-related sectors. Mining stocks fell sharply in London and South Africa, while major European and Asian exchanges moved into negative territory.
Simultaneously, oil prices also recorded a sharp decline, in a context marked by prospects for an easing of tensions between the United States and Iran.
Despite the violence of the move, several analysts believe this phase of decline primarily wipes out recent excesses. For both Natixis and Deutsche Bank, the previous surge in gold and silver contained a significant speculative component.
At this stage, specialists largely consider that this correction, although brutal, fits into a logical market adjustment, without calling into question the long-term fundamentals of precious metals.
