After a blistering rally that sent gold and silver to all-time highs in January 2026, investors are now grappling with a dramatic and swift reversal in prices. Gold futures dropped below $4,800 per troy ounce on Jan. 30 in what became spot gold’s steepest one-day percentage loss since the early 1980s. Meanwhile, March silver futures plunged over 13% on the day, and the iShares Silver Trust and SPDR Gold Trust tumbled 24.1% and 4.7% last week, respectively.
One catalyst behind the collapse in precious metals was US President Donald Trump’s nomination of Kevin Warsh as the next Federal Reserve Chair. Known for his traditionally hawkish views, Warsh’s nomination eased concerns over the Fed’s independence but also sparked speculation around more aggressive monetary policy tightening. As markets braced for higher interest rates, the US dollar surged, reflected by a 1% rise in the Invesco DB US Dollar Index Bullish Fund on Jan. 30, dimming gold’s appeal as an inflation hedge.
Evercore ISI Vice Chairman Krishna Guha described the market reaction as “trading Warsh hawkish.” However, he warned investors not to misjudge Warsh, noting his pragmatic approach to policy. Regardless of nuance, the perception of tighter monetary policy triggered a cascading effect across commodity markets.
The scale of the reversal was exacerbated by crowded positioning, particularly in exchange-traded funds and leveraged derivatives. A wave of speculative call option buying and margin-fueled futures positions contributed to a self-reinforcing selloff. For example, the ProShares Ultra Silver ETF unwound billions of dollars in silver futures on Jan. 30, fueling a sharp intraday decline of 27% before modestly rebounding.
Analysts also pointed to changes in trading requirements on major exchanges, which made it more expensive for speculators to hold positions, shaking confidence and triggering forced liquidations. “The bottom line is that the trade was way too crowded,” said Robert Gottlieb, a veteran metals trader and now an independent commentator. The heavy selloff was pronounced during Asian trading sessions, as Chinese traders who had previously driven prices higher in a frenzy of buying reversed course. This reversal continued during the Shanghai night session, illustrating how quickly momentum shifted.
Heading into 2026, a weakening US dollar had buoyed precious metals. Pressures from de-dollarization, geopolitical instability, and a partial US government shutdown led to a four-year low for the US dollar. Because commodities are denominated in dollars, a decline in the dollar typically supports higher prices for assets such as gold and silver. However, recent developments suggest that the dollar could stabilize or even appreciate, particularly amid signals of tighter Federal Reserve policy.
The SPDR Gold Trust and SLV have mirrored the volatility in bullion prices, offering a real-time window into investor sentiment. While both vehicles surged through much of 2025, recent market behavior underscores the risks in passive exposure when speculative fervor turns sour.
Fundamentals Still Supportive, but Near-Term Upside Looks Muted
Despite the meltdown, analysts remain cautiously optimistic about gold’s long-term prospects. Goldman Sachs recently raised its year-end target to $5,400 per ounce, citing increased participation from private-sector investors and a continuing strategic drive toward de-dollarization. Michael Hsueh at Deutsche Bank echoed a similar sentiment, stating that current factors “do not appear primed for a sustained reversal,” and maintaining a target of $6,000.
However, short-term headwinds persist. Geopolitical risks, a major theme behind gold’s record run, have since eased, and central bank buying, which supported much of the 2025 rally, has noticeably slowed. Toni Meadows of BRI Wealth Management noted that “some of the easy upside driven by central banks has been exhausted.” In the case of silver, its smaller market size and volatile nature make it particularly vulnerable to violent price swings, hence the nickname “the devil’s metal.” Still, silver holds a unique role given its industrial relevance, especially in sectors such as artificial intelligence and clean energy. This could provide occasional support, but it also makes the metal more sensitive to broader economic swings.
A silver lining, especially for gold, is the strength of retail demand. In China, investors flooded Shenzhen’s bullion markets over the weekend to take advantage of lower prices ahead of the Lunar New Year, underscoring continued interest in physical holdings. Early signs of stabilization emerged on Feb. 2, as traders reported increased purchases of jewelry and bars.
Daniel Ghali of TD Securities noted that retail investor psychology is pivotal in the current landscape, particularly since retail demand in recent years has outpaced central bank purchases in terms of impact. “The bulk of forced sales may have already hit the tape,” he added.
ETFs tracking precious metals are facing a critical juncture. Retail inflows may cushion the downside, but without the same degree of central bank support and with tighter financial conditions looming, gains are likely to remain capped in 2026. Traders must now weigh long-term thematic trends such as de-dollarization, Federal Reserve policy, and commodity supply constraints against the sobering reminder that even “safe havens” can experience spectacular reversals. Investor interest may also be diverted to other areas. For instance, President Trump’s new “Project Vault,” a $12 billion strategic stockpiling initiative for critical minerals, reflects a growing push to secure high-tech resources like gallium and cobalt. This could impact broader metals markets and bring fresh attention to strategic alternative investments.
In sum, gold and silver may have paused their meteoric rise, but the story is far from over. For ETF investors, it’s no longer about chasing returns; it’s about active risk management and understanding the fine balance between macroeconomic forces and market sentiment.