Trump’s Fed pick prolongs brutal gold and silver sell-off

Gold and silver prices extended last week’s sharp sell-off on Monday as investors continued to assess the market impact of Donald Trump’s decision to nominate Kevin Warsh as the next chair of the Federal Reserve.

The nomination has intensified debate over the future direction of US monetary policy and concerns about potential political influence on the central bank, triggering a rapid unwinding of crowded positions in precious metals.

Spot gold fell as much as 10% in early trading, while silver dropped up to 16%, extending Friday’s rout that marked the largest intraday decline on record for silver.

Crowded trades unwind

The scale and speed of the decline highlight how stretched investor positioning had become after months of strong gains driven by geopolitical tensions and expectations of looser US monetary policy.

“Crowded one-sided trades unwind,” said Marcus Dewsnap, head of fixed income strategy at Informa Global Markets. “Fear of missing out and chasing rallies are rarely grounded in fundamentals.”

He added that precious metals markets had risen sharply beyond what economic conditions justified, leaving them vulnerable to sudden reversals.

Dollar strength adds pressure

The sell-off accelerated late last week after news of Warsh’s nomination pushed the US dollar higher and prompted investors to reassess interest-rate expectations.

According to analysts at ING, markets interpreted the move as reinforcing expectations of a more hawkish policy stance, even though Warsh has previously expressed support for some rate cuts.

“While a correction was overdue after the strong rally, the scale of the decline far exceeded expectations,” ING analysts said.

Gold and silver tend to be highly sensitive to interest-rate expectations, as higher rates increase the opportunity cost of holding non-yielding assets, while a stronger dollar makes metals more expensive for global buyers.

Fed independence in focus

Although Warsh is seen as broadly aligned with Trump’s economic vision, analysts say he is not viewed as an aggressive advocate of deep interest-rate cuts.

“Warsh isn’t considered as dovish as markets believe the president would prefer,” Dewsnap said. “In terms of Fed independence, he is seen as a steadier choice than some other potential candidates.”

Investor retreat deepens

Signs of caution are emerging across markets. Holdings in silver-backed exchange-traded funds fell for a seventh consecutive session, reaching their lowest level since November 2025.

Futures data also point to a sharp reduction in speculative bullish bets, with managed money cutting net long positions in both gold and silver.

“Speculative interest across precious metals is cooling,” ING said, noting that positioning in silver has dropped to its lowest level since early 2024.

Margins and volatility amplify losses

Market stress has been intensified by mechanical factors, including plans by CME Group to raise margin requirements on gold and silver futures following last week’s extreme price swings.

Higher margin requirements force traders to post more collateral or reduce exposure, a dynamic that can accelerate declines in leveraged markets.

“When exits become crowded, there simply aren’t enough buyers to absorb the selling,” Dewsnap said.

Fragile outlook

Attention is now shifting to Asia, where Chinese investors have historically stepped in during price dips. However, elevated volatility and the upcoming Lunar New Year may limit near-term participation.

Analysts say precious metals remain highly exposed to macroeconomic forces, including US data, real interest rates and movements in the dollar.

“Volatility is likely to remain elevated in the near term,” ING said. “Macro uncertainty, interest-rate expectations and dollar direction will continue to drive sentiment in gold and silver.”