Gold and Silver Plunge After Record Rally as Investors React to Fed and Lunar New Year
Precious metals took a sharp hit as gold and silver reversed a record-breaking rally that had soared to historic highs. In Asian trading on Monday, spot gold dropped as much as 6.3%, while silver plunged nearly 12%, continuing a dramatic selloff that stunned traders worldwide.
The white metals had surged earlier this year amid fears of geopolitical turmoil, currency devaluation, and concerns over Federal Reserve independence. But after Friday’s sharp retreat, investors are taking a step back to reassess risks, causing volatility to spike.
A Historic Rally Meets a Sudden Selloff
Gold and silver had been on an extraordinary run, hitting all-time highs that even seasoned market participants found surprising. The rally accelerated in January as both Western and Chinese investors poured money into precious metals, seeking safety amid uncertainty.
However, this momentum reversed sharply on Monday: gold briefly rose more than 3% during intraday trading before resuming its steep decline. The previous session had already recorded gold’s largest single-day loss on record, signaling that the rally may have stretched too far, too fast.
Robert Gottlieb, a former JPMorgan Chase precious metals trader, said:
“This isn’t over. We’ve got to see if it’s going to find support. The bottom line is that the trade was way too crowded.”
China’s Role in the Market
Chinese investors have played a major role in both the surge and the pullback. During the Lunar New Year period, buyers flocked to bullion markets in Shenzhen to purchase gold jewelry and bars, keeping domestic demand strong despite falling international prices.
Zijie Wu, an analyst at Jinrui Futures Co., noted:
“The combination of heightened volatility and the proximity of the Lunar New Year will prompt traders to trim positions and reduce risk. At the same time, the pullback in prices may support retail demand in China.”
China’s markets will close for just over a week starting February 16 for the Lunar New Year, which may influence trading patterns and demand in the coming days.
What Triggered the Selloff
Friday’s dramatic drop in precious metals was triggered by news that US President Donald Trump would nominate Kevin Warsh as Fed chair. Warsh is viewed as a strong inflation fighter, and his nomination raised expectations for tighter monetary policy, strengthening the dollar and undermining gold and silver prices.
Earlier, the metals had also been boosted by record purchases of call options—contracts that allow investors to buy at predetermined prices. As sellers hedged against rising prices, they were forced to buy more, which mechanically pushed prices higher. Once momentum shifted, the unwind contributed to steep losses.
Silver Faces Extra Pressure
Silver has been particularly volatile due to waves of speculative money in China and domestic supply tightness. Analysts warn that as investment demand declines, these supply constraints may ease. Wang Yanqing of China Futures Co. explained:
“Once the consensus expectation of a one-way rally is broken, shorts’ willingness to make delivery will increase, helping to ease the shortage.”
Current Prices and Market Snapshot
As of midday Singapore time on Monday:
- Gold: $4,671.53 an ounce, down 4.6%
- Silver: $78.86, down 7.4%
- Platinum and Palladium: also retreated
- Bloomberg Dollar Spot Index: up 0.1% after a 0.9% gain in the previous session
Investors are now closely watching whether gold and silver can find support or if the rout will continue in the near term.
What Comes Next
The recent volatility highlights the fragile balance in precious metals markets. After months of a record-breaking rally fueled by geopolitical concerns, currency uncertainty, and speculative buying, gold and silver may need a period of stabilization.
Traders and investors will be closely monitoring:
- The US Federal Reserve’s policy direction under Kevin Warsh
- Investor appetite in China during the Lunar New Year
- Global market sentiment amid geopolitical and economic developments
While the sharp pullback may worry some, others see it as an opportunity to buy gold and silver at lower prices, particularly for long-term investors seeking safe-haven assets.