Gold and silver markets are undergoing one of their sharpest reversals in decades after President Donald Trump announced Kevin Warsh as his pick to lead the Federal Reserve. The decision has forced investors to rapidly unwind bullish positions built on assumptions of a weaker dollar, lower interest rates, and political tolerance for inflation. What began as a policy headline has quickly evolved into a full-scale repricing of precious metals risk.

A Violent Reversal After a Crowded Rally

Spot gold plunged as much as 10% in early trading, while silver collapsed by up to 16%, extending Friday’s sell-off that marked the worst intraday decline in silver on record. The speed of the move reflected how stretched positioning had become following months of relentless inflows driven by geopolitical anxiety, central bank buying, and expectations that the Fed’s independence would erode under Trump’s second term.

Markets had priced in a scenario where political pressure would lead to faster rate cuts and sustained dollar weakness. The nomination of Kevin Warsh, long viewed as an inflation hawk despite more recent dovish commentary, abruptly challenged that narrative. The result was a disorderly exit from trades that had grown increasingly one-sided.

Why Fed Leadership Matters for Precious Metals

Gold and silver are acutely sensitive to US monetary policy expectations. Higher real interest rates raise the opportunity cost of holding non-yielding assets, while a stronger dollar reduces demand from non-US buyers. Warsh’s perceived credibility as a defender of monetary discipline immediately pushed the dollar higher, triggering a reassessment of the macro environment that had underpinned the rally.

Exchange-traded fund flows reflect this shift. Silver ETF holdings have fallen for seven consecutive sessions, reaching their lowest level since November 2025. Futures positioning tells a similar story. Data from the Commodity Futures Trading Commission shows managed money rapidly cutting net long exposure in both gold and silver, signaling that speculative appetite has cooled materially.

Mechanical Stress Amplifies the Downturn

Beyond macro fundamentals, structural market dynamics have worsened the sell-off. The CME Group is raising margin requirements on COMEX gold and silver futures in response to extreme volatility. Higher margins force leveraged traders to post additional collateral or liquidate positions, often accelerating declines regardless of fundamental conviction.

This feedback loop highlights a recurring pattern in commodity markets: prolonged rallies driven by leverage and momentum tend to reverse violently once confidence breaks. With volatility elevated and liquidity thinning, price discovery becomes more disorderly.

A Fragile Near-Term Outlook

Attention is now shifting toward Asia, particularly China, where retail and speculative buying has historically provided support during pullbacks. However, the proximity of the Lunar New Year and heightened volatility may limit near-term participation. At the same time, investors remain highly sensitive to US data releases that influence real rates and the dollar.

Until clarity emerges on the Fed’s future policy stance and the administration’s tolerance for tighter financial conditions, precious metals are likely to remain unstable.