Gold and Silver Plunge to Historic Intraday Losses Amid Fed Nomination

Original Author: Wall Street Notes

On Thursday, gold and silver experienced a sharp plunge, with gold hitting intraday historical highs earlier in the week. On Friday morning in the Asian session, gold turned negative after news broke that Trump would nominate Jerome Powell as the new Federal Reserve Chair. During the European session, gold prices fell below the 5,000 USD per troy ounce level. The decline widened further during the U.S. session, with the spot gold price dropping nearly 13% in a single day—the largest intraday drop in over four decades since the early 1980s, surpassing the decline seen during the 2008 financial crisis.

Silver, which for the first time in history rose above $120 per ounce on Thursday, fell below $100 during European trading on Friday, and even dropped below $80 during U.S. trading. The price of physical silver plunged more than 35% at one point during the session, marking the largest single-day decline on record. This "bloodbath" spread across the entire metal market. London copper, which also hit a record high on Thursday, fell nearly 6% at one point.

The market attributed this sharp decline to a sudden shift in investors' expectations regarding the Federal Reserve's policies.

Wash has long been known for his hawkish stance. Although he recently publicly supported rate cuts to align with Trump, the market still believes he is unlikely to advocate aggressive rate cuts.

Commerzbank analyst Thu Lan Nguyen said, "The market views Waugh as more hawkish than other candidates, such as Hasset." This expectation pushed the dollar to rebound, making dollar-denominated commodities less attractive to global buyers.

Wash's nomination also alleviated market concerns about the loss of the Federal Reserve's independence.

Previously, investors flocked to precious metals as a safe haven, partly driven by concerns over currency depreciation and the Federal Reserve's independence.

ING foreign exchange strategist Francesco Pesole said that Wash's selection is "good news for the dollar, as it can alleviate some concerns about a more dovish choice."

This crash also exposed the extreme fragility of the precious metals market.

After recent consecutive surges in gold and silver prices, crowded long positions, record levels of call option purchases, and extreme leverage levels have left the market in a state where a "gamma squeeze" could be triggered at any moment.

Michael Brown, a senior research strategist at Pepperstone, said, "The market has become extremely overbubbled, and only a slight trigger is needed to provoke such a move."

On Friday, during the midday session of U.S. stock markets, the precious metals market experienced a dramatic plunge. After the New York silver futures main contract hit a historical high of $121.785 on Thursday, it fell below $80, once dropping to $74, with an intraday decline slightly exceeding 35%. The price of spot silver fell below $74.60, with an intraday drop of 35.5%, marking the largest intraday decline in recorded history.

Gold also suffered a significant setback. New York gold futures, which had risen to a historic high of 5,586.2 dollars during Thursday's trading, fell to 4,714.5 dollars by midday in Friday's U.S. stock market session, dropping nearly 12% within the day. Spot gold approached 4,670 dollars during midday U.S. stock trading, falling more than 12.7% for the day.

At the close of the U.S. midday session, COMEX February gold futures fell 11.37% to close at $4,713.9 per ounce, marking the largest single-day drop since January 22, 1980. COMEX February silver futures fell 31.35% to close at $78.29 per ounce, recording the largest closing decline since March 27, 1980.

Industrial metals were also not spared. On Friday, London copper, which had surged past $14,520 per ton on Thursday to hit a record high with an 11% increase, fell below $12,850 per ton during the session, dropping nearly 5.7% on the day, and closed down about 3.4% at $13,158 per ton. By the close, London tin fell about 5.7%, while London aluminum and London nickel both fell more than 2%.

The spark for the market sell-off was the news of Wash's nomination.

On Friday, Asian markets early reported that Trump would nominate Jerome Powell to be the Federal Reserve Chair. Following this news, gold, which had hit a new intraday historical high for nine consecutive trading days, immediately turned lower.

Before the U.S. stock market opened on Friday, Trump announced via his social media platform the official nomination. He stated that he had known Wessel for a long time and had no doubt that Wessel would join the ranks of great Federal Reserve chairs, possibly even becoming the best one.

Wash had long been known for his hawkish stance, but changed his tune last year, echoing Trump's call for significant interest rate cuts, which was seen as key to his nomination.

Wall Street investors and strategists said that Trump's choice of沃什 to lead the Federal Reserve is a relatively hawkish decision, as he may resist expanding the balance sheet, which would support the dollar and steepen the U.S. Treasury yield curve.

Tom Price, an analyst at Panmure Liberation, said:

"The market views Kevin Warsh as rational and unlikely to aggressively push for interest rate cuts. Ordinary investors with diverse objectives—such as capital preservation—are taking profits."

Wash's nomination spurred a strong rebound in the U.S. dollar, delivering its best single-day performance in six months since July of last year. The ICE U.S. Dollar Index, which tracks the dollar against a basket of currencies, rose above 97.10 at midday in U.S. equity trading on Friday, gaining nearly 0.9% for the day. A stronger dollar reduced the appeal of dollar-denominated commodities for many global buyers and weakened the argument that precious metals could replace the dollar as the world's reserve currency.

Although Woschi's nomination served as the trigger for the selloff, analysts generally believe technical factors amplified the decline.

The media believes that surging prices and volatility have put pressure on traders' risk models and balance sheets. A Goldman Sachs research report noted that the record surge in buying call options "mechanically reinforces upward price momentum," as option sellers buy more futures to hedge their exposure.

The decline in gold prices could be accelerated by so-called "gamma squeeze." This refers to the need for options traders to buy more futures to maintain portfolio balance when prices rise, and to sell when prices fall.

For the SPDR Gold ETF, a large number of positions expiring on Friday are concentrated at $465 and $455, while on the Comex, large options positions for March and April are concentrated at $5,300, $5,200, and $5,100.

Matt Maley, a stock strategist at Miller Tabak, said, "This is crazy. A lot of this is probably forced selling. Silver has recently been the hottest asset for day traders and other short-term traders, so silver has accumulated some leverage. With today's sharp decline, margin calls have been issued."

Michael Brown from Pepperstone noted, "For some time now, the condition of the metal markets has been extremely overinflated, and signs earlier this week indicate that the situation is becoming completely chaotic." He stated that positions in the gold and silver markets are "clearly extremely crowded on the long side, and volatility has increased to absurd levels, to be honest." In a market with such high volume and "leveraged longs" so tightly stretched, "it doesn't take much to trigger" a move like the one seen on Friday.

Brown said, "Simply put, everyone is rushing for the exit at the same time, forcing prices lower, which in turn triggers further forced selling," reminding people that "momentum is two-way."

Christopher Wong, a strategist at Overseas-Chinese Banking Corp., said the move in gold "validates the warning that it can go up fast and come down fast." While the report on Walsh's nomination was the trigger, he said the pullback was long overdue, adding, "this is one of those excuses the market has been waiting for to take profits off the table from the parabolic move."

Before the sharp decline, multiple technical indicators had already issued warning signals. The Relative Strength Index (RSI) has shown in recent weeks that gold and silver may have become overbought and were facing a potential pullback. Gold's RSI recently reached 90, the highest level for this precious metal in decades.

Dominik Sperzel, trading director at Heraeus Precious Metals, said the volatility was extremely intense, with the psychological resistance levels of $5,000 and $100 being repeatedly broken through on Friday. "However, we need to be prepared for the rollercoaster to continue," he added.

Although there was a sharp decline on Friday, gold and silver still recorded significant gains in January. Calculated based on the near-month contract closing prices, New York gold for January rose about 9%, while silver surged more than 10%.

The COMEX February gold futures rose by 8.98% in January, the largest monthly gain in four months, marking the sixth consecutive month of gains, the longest winning streak since October 2024. The COMEX February silver futures surged by 11.63% in January, extending its consecutive monthly gains to nine months, the longest winning streak on record. Over the nine-month period, silver climbed 140.66%, the largest nine-month increase since April 2011.

Commerzbank analysts wrote in a Friday report that the extent of the pullback "indicates that market participants are merely waiting for an opportunity to take profits after a rapid price rally." The bank's head of commodities research, Thu Lan Nguyen, noted that...

Although "the market views Wash as more hawkish than other candidates such as Hasset," "we still believe that the Federal Reserve is likely to give in to some extent and cut interest rates by a greater margin than currently expected by the market."

A sharp decline in precious metals dragged down the shares of major mining companies. During Friday's trading session, U.S.-listed gold mining giants Newmont (NEM), Barrick Mining (B), and Agnico Eagle Mines (AEM) all fell more than 10%, while Coeur Mining (CDE) dropped as much as nearly 19%.

Silver ETFs suffered a major blow. During trading, ProShares Ultra Silver (AGQ) fell more than 60%, while iShares Silver Trust ETF (SLV) dropped over 30%, both setting their worst single-day performances in history. Gold ETFs also faced pressure.

Although mining stocks plummeted on Friday, some analysts believe the pullback is healthy for the market. Nate Miller, vice president of product development at Amplify ETFs, said that silver benefits from demand for safe-haven assets and a store of value, industrial demand, and a global supply shortage. He added that some consolidation following such a sharp rise is "healthy and typical of commodity markets after rapid price appreciation."

Peter Grant, Vice President and Senior Metal Strategist at Zaner Metals, said that although the rebound has indeed been too fast and too far, it is not too late to buy metals now. He described a drop below $100 as an "opportunity," especially around the 20-day moving average of about $93. However, "you must be able to tolerate volatility, which could remain high for some time."

Bloomberg macro strategist Simon White pointed out:

"The rise in the silver/gold (price) ratio is almost as significant as it was at the end of the 1970s, and today's dramatic move suggests it may be signaling a rejection point. However, on their own, gold and silver have not yet fully matched the rally seen in 1979. It is too early to conclude whether silver's performance relative to gold marks the end of a historic upswing in the precious metals. Prices are now becoming the main driver, while fundamentals will temporarily take a back seat."