Gold markets are undergoing a violent reset after one of the most aggressive rallies in modern precious-metals history. Prices extended losses following Friday’s historic plunge, with gold now down nearly 20% from last week’s peak, while silver collapsed even faster. The speed and scale of the reversal reflect not a collapse in the long-term case for precious metals, but the consequences of an overcrowded trade meeting a sudden change in macro assumptions.

From Safe Haven to Crowded Exit

Spot gold fell as much as 8% in Monday trading, while silver plunged over 14% at its worst point, extending the sharpest intraday declines on record. The retreat comes after months of relentless buying driven by geopolitical anxiety, concerns over currency debasement, and doubts about the independence of the Federal Reserve. As prices surged, speculative positioning intensified, particularly through call options that mechanically amplified upside momentum.

That dynamic has now flipped. Once prices began to fall, the same positioning that fueled the rally accelerated the downturn, as traders were forced to cut risk and unwind leveraged bets. Liquidity thinned rapidly, magnifying price swings and exposing how fragile sentiment had become beneath the surface.

Dollar Strength and Policy Expectations Shift

The immediate catalyst for the selloff was renewed strength in the US dollar following news that Donald Trump intends to nominate Kevin Warsh as the next Federal Reserve chair. Warsh is widely viewed as one of the most inflation-focused policymakers under consideration, undermining expectations that Washington would tolerate a persistently weaker dollar.

For investors who had positioned for continued currency depreciation as a tailwind for gold, the shift was abrupt and destabilizing. Rising expectations of tighter monetary discipline lifted the dollar and pressured bullion, which is priced in US currency and typically moves inversely to it.

China’s Dual Role: Speculator and Stabilizer

China remains central to what happens next. The rally’s later stages were marked by aggressive buying from Chinese speculative investors, particularly in silver, contributing to domestic supply tightness and record premiums. As prices fell, Shanghai benchmarks also declined, though they continue to trade above international levels, suggesting underlying physical demand has not evaporated.

Retail behavior offers a counterweight to the speculative exodus. Ahead of the Lunar New Year, buyers in major bullion hubs such as Shenzhen have reportedly increased purchases of jewelry and bars, taking advantage of lower prices. With domestic markets set to close for more than a week from mid-February, near-term volatility may persist as traders reduce exposure before the holiday.

What to Watch From Here

The crucial question is whether gold can establish a durable support level or whether further liquidation lies ahead. Extreme volatility, tighter risk limits, and reduced liquidity suggest that rebounds may be uneven and fragile. Yet, if physical demand absorbs supply and macro uncertainty resurfaces, longer-term support could re-emerge once speculative excess is fully cleared.