Gold and silver suffered an abrupt, violent reversal in the final trading days of January as prices cratered from record highs in what market participants call a liquidity-driven stampede. The sell-off accelerated after U.S. President Donald Trump nominated former Fed governor Kevin Warsh to replace Jerome Powell, a step that immediately strengthened the dollar and changed market expectations about the Federal Reserve’s policy stance.
Spot gold plunged intraday from a January 29 peak of $5,598.75 per ounce to an intraday low near $4,682, settling at $4,880.03 and wiping out weekly gains; COMEX futures closed down 8.35% at $4,907.50. Silver’s rout was even harsher: spot silver fell as much as 35.89% in a day to $74.28 per ounce before closing around $85.26, while COMEX silver futures plunged 25.5%.
The proximate mechanics of the crash were classic leverage and liquidity dynamics. Exchanges including the CME and Shanghai Futures Exchange had already raised margin requirements as prices surged, leaving speculative positions highly leveraged. When the Fed-nominee news ignited a dollar rally and expectations of tighter policy, forced margin calls and algorithmic stop-losses cascaded into mass selling, amplifying the initial shock.
Risk controls and subsequent exchange actions further fed the feedback loop. The Shanghai exchange widened daily limits to 16% for gold and silver futures and increased margin ratios; the CME raised non-high-risk account margins for gold and silver. Those measures, meant to curb speculation, tightened liquidity at the worst possible moment and contributed to the ‘‘downward sell—forced liquidation—further selling’’ spiral traders described.
The crash spilled across asset classes. Industrial metals such as LME copper and tin fell around 5–6% intraday, aluminium and nickel declined over 2%, and cryptocurrencies also weakened as cross-asset panic spread. In China, retail pain has been immediate: physical gold jewellery prices fell sharply, provoking customer disputes over returns and triggering questions about refund policies for bought-but-not-yet-delivered items.
Technical indicators had warned of vulnerability. Gold’s RSI reached 90 and silver’s RSI exceeded 93—extreme readings rarely sustained—while implied volatilities for gold-backed ETFs climbed to historic percentiles, signalling an overstretched, low-tolerance market. Traders and strategists point to the combination of extreme positioning, elevated volatility, concentrated speculative flows and the sudden policy narrative shift as the combustible mix that produced the episode.
Analysts are divided on what comes next. In the short term, many expect volatility to remain elevated while deleveraging completes and algorithmic strategies reprice risk; UBS and other strategists warned of near-term downside as speculative interest unwinds. Over the medium to long term, some observers argue the fundamentals that underpinned the rally—a fragile dollar-based credit system, persistent fiscal deficits in the United States and central bank appetite for diversifying reserves—remain intact and could reassert support for precious metals once acute liquidity stress abates.
For investors the episode is a cautionary tale. High leverage in thin liquidity environments can convert a policy surprise into a systemic-looking correction within hours. Market participants should reassess leverage, ensure robust stop-loss frameworks, and recognise that policy credibility shocks can be as important as macro data in moving prices rapidly across asset classes.