Trump’s Fed Nominee Extends Sharp Gold and Silver Sell-off
Gold and silver experienced a notable decline this week, driven by investor reactions to President Donald Trump’s nomination of Kevin Warsh as the new chair of the US Federal Reserve. This development has prompted a significant reassessment of monetary policy expectations and its impacts on precious metals.
Market Response to Warsh’s Nomination
Following the announcement, spot gold prices dropped by as much as 10% during early trading, while silver fell by 16%. This follow-up was particularly pronounced after Friday’s sell-off, which marked the largest single-day decline for silver on record.
Investor Behavior and Market Dynamics
- The rapid declines reflect investor concerns over previously stretched positions in gold and silver.
- Heightened geopolitical tensions and anticipations of a more dovish US policy had drawn investors into precious metals.
Marcus Dewsnap, from Informa Global Markets, highlighted that such drastic sell-offs typically signal an unwind of crowded trades. He noted that chasing prices based on fear of missing out (FOMO) isn’t sustainable and often diverges from economic fundamentals.
The Role of Interest Rates
The presiding sentiment indicates that gold and silver are sensitive to interest rate changes. As rates increase, the opportunity cost of holding non-yielding assets like metals also rises. This situation is exacerbated by a stronger US dollar, as it makes metals more costly for international investors.
Markets are reacting to insights that Warsh, despite some support for President Trump’s vision, is not necessarily an advocate for aggressive monetary easing. This perception has shaped investor expectations about future interest rates.
Investor Caution and Fund Flows
- Exchange-traded funds (ETFs) have reflected growing caution, with silver holdings falling for a seventh consecutive time to their lowest levels since November 2025.
- Speculators are increasingly reducing bullish positions in both gold and silver, indicating a broader retreat from these markets.
- Last week saw a drop of approximately 17,741 lots in net long positions for COMEX gold.
Market Volatility and Margin Requirements
The volatility observed in recent trading sessions has prompted the CME Group to raise margin requirements for gold and silver futures. This adjustment requires traders to increase collateral or lessen their exposure, potentially adding to the pressure on prices.
Dewsnap explained that when markets exhibit rises that do not align with fundamentals, minor triggers can lead to significant market exits. He referred to this situation as a “narrow exit,” where insufficient buying power exacerbates price falls.
Looking Ahead: Asia’s Role and Market Sentiment
Attention now shifts towards Asia, where Chinese investors frequently bolster support during market dips. Given the heightened volatility and the upcoming Lunar New Year, market participation from this region may remain cautious.
The outlook for precious metals remains tentative. Investors are closely monitoring US economic data, as fluctuations in real interest rates and the strength of the dollar will continue to influence market sentiment.
Conclusion
The precious metals market is currently navigating a complex landscape shaped by macroeconomic factors. As volatility persists, the future trajectory of gold and silver will remain closely tied to shifts in monetary policy and investor psychology.
