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Precious metals suffer steep losses following historic highs
Gold and silver prices tumbled this week, erasing gains from a recent surge that had propelled both metals to all-time highs. The sell-off followed a mix of market reactions to U.S. Federal Reserve developments and shifting investor sentiment.
Market reaction to Fed nomination triggers sell-off
Spot gold prices dropped nearly 10% at their lowest point, while silver fell as much as 15% before partially recovering. The decline accelerated after President Donald Trump nominated former Fed governor Kevin Warsh as the central bank's next chair on Friday. Financial markets largely welcomed the news, sending the U.S. dollar up by 1%.
Gold recorded its steepest single-day drop since 1983, plunging over 9%, while silver fell 27%. By Monday, gold had rebounded to $4,750 per ounce, down 3% on the day, and silver stabilized at $82 per ounce, a 3.4% decline.
"The clear catalyst for Friday's sell-off appeared to be news that Kevin Warsh had secured the nomination for Fed chair," analysts at Deutsche Bank said.
Trading rule changes and profit-taking add pressure
Another factor contributing to the slump was a modification in trading requirements for precious metals on a major exchange, which increased costs for speculators. Despite the sharp pullback, gold prices remain roughly 70% higher than a year ago, only retracing to levels seen two weeks prior.
Mark Matthews, head of research for Asia at Bank Julius Baer, told Reuters that the recent volatility likely stemmed from gold's rapid ascent. "Once profit-taking started, it just snowballed," he said.
Broader market impact and commodity sell-off
The metals rout rippled through global markets. Asian stocks fell sharply on Monday, with South Korea's Kospi leading losses at 5%. Hong Kong's Hang Seng dropped 3%, and Japan's Nikkei 225 declined over 1%. In Europe, the UK's FTSE 100 initially dipped but recovered to close 0.5% higher by midday. Mining stocks, including gold producers Fresnillo and Endeavour Mining, fell 2-3%.
Crude oil prices also declined nearly 5%, influenced by major producers maintaining output levels and easing U.S.-Iran tensions. The stronger U.S. dollar further weighed on oil, as it is priced in dollars and becomes more expensive for non-U.S. buyers.
Gold's rollercoaster year and future outlook
Precious metals had an exceptional 2025, with gold posting its largest annual gain since 1979. Prices surged amid geopolitical uncertainties, including U.S. tariffs and concerns over overvalued AI-related stocks. Gold peaked above $5,500 per ounce in late January, while silver hit a record $120.
Analysts expect the Fed to cut interest rates at least twice in 2026, which could support gold prices, as the metal typically performs well in low-rate environments. Gold's scarcity-only about 216,265 tonnes have ever been mined, according to the World Gold Council-continues to underpin its appeal.
The recent rally was also driven by central bank purchases and heightened geopolitical risks. However, as Matthews noted, prices can reverse quickly when investor sentiment shifts or concerns ease.
