Editor’s Note
This article examines the historic plunge in precious metals prices, analyzing the key triggers behind the sudden reversal and the significant role played by China in this market shift.
Are we witnessing a turning point in the precious metals market? Within a few hours, prices crashed more severely than they have in decades. China plays a major role.
Gold temporarily lost around ten percent in recent days, while silver plunged by more than 25 percent at times. Market observers unanimously speak of a historic crash.
But what were the central triggers – and what role did China play?
The crash was preceded by an exceptionally strong rally. Gold and silver had reached new all-time highs in the preceding weeks, driven by geopolitical risks, inflation concerns, and massive inflows into exchange-traded precious metal products.
Simultaneously, speculative positioning – particularly in silver – had built up significantly. Many market participants were highly leveraged, and the market was considered technically overbought. When sentiment turned, it hit a market that had almost no buffer left.
The immediate trigger is considered a political signal from Washington. Donald Trump’s announcement to nominate Kevin Warsh as the future chairman of the US Federal Reserve abruptly changed interest rate expectations.
Warsh is seen as a proponent of a more restrictive monetary policy. Consequently, the US dollar strengthened significantly, while expectations for rapid interest rate cuts were dampened.
This environment is problematic for gold and silver: Neither generates ongoing yields and both react sensitively to rising real interest rates and a stronger dollar.
In many commentaries, this “interest rate and dollar shock” is cited as the initial trigger for the selling wave.
What followed was classic market mechanics. Stop-loss orders were triggered, algorithmic trading systems amplified the downward pressure, and margin calls forced speculative investors to liquidate their positions.
Silver, traditionally more volatile and speculative than gold, particularly plunged into a veritable downward spiral.
The situation was exacerbated by the reaction of futures exchanges. After the crash, operators like the CME Group significantly increased margin requirements for gold and silver futures.
Although this step formally occurred only after the crash, in the perception of many market participants, it increased pressure on already strained positions.
China plays a central role in the analysis of many observers. Even before the crash, clear overheating tendencies were evident there – particularly in the silver market.
China’s only major silver fund was at times trading with massive premiums to its net asset value, a classic sign of speculative excess. The fund company suspended trading multiple times and publicly warned of significant loss risks.
Parallel to this, Chinese exchanges and regulators intervened. At the Shanghai Futures Exchange and the Shanghai Gold Exchange, margins were increased and price limits were tightened to curb speculation.
Many market commentaries emphasize that these measures were understood globally as a signal: China, recently one of the most important demand and stability factors, was pulling the risk brake.
There is also a psychological aspect. China is often seen as the “buyer of last resort” in the precious metals market during stress phases.
When it became clear that the authorities were prioritizing market stabilization over further price increases, international sentiment noticeably shifted.
The extreme volatility also led to a withdrawal of liquidity. Banks and market makers reduced their engagement, spreads widened, and individual sell orders had disproportionately strong price effects. In such an environment, a market can “slip through” very quickly – exactly what was observed on January 30.
It was further intensified by simultaneous pressure on other markets. Price losses in technology stocks and high volatility in equity markets forced some investors to sell gold positions to cover losses or margin calls in other asset classes.
The crash in gold and silver was not a singular event with a single cause. Rather, several factors converged: an overextended rally, political impulses from the USA, technical market mechanisms, regulatory interventions in China, and an abrupt drying up of liquidity.
For investors, the plunge is a reminder that even assets considered “safe” can be subject to extreme fluctuations – especially when speculative excesses and political expectations dominate the market.