After days of panic buying and record-breaking highs, gold and silver prices fell sharply when Donald Trump announced that he would lead the US Federal Reserve. The move eased worries that the central bank could be used for political purposes, and it caused a rush to cash in on profits from precious metals.
Gold and silver prices go from all-time highs to a brutal drop.
The price changes were very noticeable by early Friday afternoon. Gold was still down 6.27%, trading at about $5,037.91 an ounce. It had briefly dropped by more than 8% during the day. Silver did even worse, losing more than 17.6% at one point and ending up down 14.30% to $99.1537 an ounce.
The sudden drop in gold and silver was a huge change from the record highs they had just hit 24 hours earlier.
On Thursday, both metals broke previous records. Gold reached $5,595.47 an ounce, and silver reached $121.6540. Those peaks came at the end of a fast rise fueled by a mix of geopolitical tensions, uncertainty about US politics, and nagging doubts about the Fed’s independence.
Gold went up almost 30% from the beginning of the year to Thursday’s highs. Silver had gone up almost 70% because it was a safe haven and because there was a lot of demand for it in solar panels and electronics. The same excitement spread to industrial metals like copper, which did well as people rushed to buy physical assets that they thought were safer than currencies.
Trump’s choice of Kevin Warsh eases fears about the central bank.
The reason for Friday’s change was political, not geological. Donald Trump said that he wants Kevin Warsh, a former governor of the Federal Reserve, to take over as chair of the Fed when Jerome Powell’s term ends in May.
People see Warsh as someone who is deeply rooted in traditional central banking. During the global financial crisis, he was on the Fed’s Board of Governors. Since then, he has become known in financial circles as a conservative but institutionally minded policymaker.
Traders saw Warsh’s nomination as a sign that the Fed wouldn’t just do what the White House wanted.
Trump has been attacking the Fed and Powell a lot lately, saying that interest rates need to be cut even more. Investors were shaken by those clashes and started to see precious metals as a way to protect themselves against a future in which the US central bank might lose its independence and trustworthiness.
Analysts said that the new name changed the story. A candidate who is seen as “conventional” and not just an extension of the president calms fears of a politicized Fed. That means that gold and silver are less important as a way to protect yourself against institutional breakdown.
Taking profits makes the fall happen faster.
It wasn’t just about the politics of central banks that caused the selling pressure. After the metals’ big rise, many traders had big paper gains. The news on Friday gave traders a good reason to lock in their profits.
Once prices started to drop, algorithmic trading and stop-loss orders probably made the drop even bigger. When sentiment changes, large speculative positions that have built up during the recent rise can quickly unwind, causing prices to drop faster than fundamentals alone would suggest.
The size of the correction suggests that investors were looking for any reason to sell.
A number of market experts said that the drop didn’t look like panic but rather like a sharp but logical reset. Even a small drop after such big gains in a short amount of time can look big on charts.
Why “safe havens” suddenly seemed less important
People usually look for gold and silver when they are worried, like during wars, financial crises, or currency scares. This year’s rally was based on all three themes:
Tensions are growing in the Middle East and between Washington and Tehran.
Worries about the US’s political instability during an election cycle
People were unsure if the Fed would stick to data-driven monetary policy or give in to politics.
When Trump chose Warsh, one of those fears—about the Fed’s independence—changed the math. It seemed less likely that a central bank would carelessly cut rates or use political promises to make money. That made it less appealing to park cash in gold as a way to protect yourself.
How the Fed’s independence affects the prices of metals
For a lot of retail investors, the link between the name of a central banker and the price of a gold bar can seem strange. But the chain is pretty direct.
How people see the Fed and how investors reactEffect on silver and gold
Independent and trustworthyMore faith in bonds and the dollarLess need for safe-haven metals
Politicized and hard to predict. Move into hard assets and foreign currencies.More people want gold and silver
People feel better about holding dollars and US government debt if they think the Fed will stand up to political pressure. Yield and safety are there, not in a metal that doesn’t pay interest. If that expectation fades, bullion suddenly seems like a better way to store value.
Friday’s move shows that the markets are leaning toward the first scenario, at least for now. Many people see Warsh as a “defender of the Fed’s independence,” which goes against months of speculation that the central bank is politically controlled.
What this means for regular investors
The violent swings show how dangerous it can be to trade precious metals, especially for people who are new to it. If you bought gold or silver at the top on Thursday because of social media buzz or scary headlines, you would have lost a lot of money by the next day.
If you buy safe-haven assets at prices that make you feel good, they aren’t always safe.
Gold can still protect long-term savers from inflation or currency risk, but only to a certain point. A lot of financial planners say that you shouldn’t treat precious metals as a one-way bet and instead keep them as a small part of your overall portfolio.
Important words to explain
There are a lot of technical-sounding phrases going around this week that really affect how people spend their money:
A safe-haven asset is an investment that tends to keep its value when the markets are stressed. Examples are gold, US Treasuries, and the Swiss franc.
Taking profits means selling an asset after it has gone up a lot to lock in gains. This can start or make corrections worse.
Independence of the Fed: The idea that central bankers don’t set interest rates based on short-term political goals, but on economic data.
Correction: A quick drop in prices that undoes some of a previous rise. It hurts, but it doesn’t have to be the start of a full crash.
What could happen to gold and silver from here on out
There are a number of possible paths forward. If geopolitical tensions rise or US growth data weakens, people may quickly start buying gold and silver again, which would push prices back up. On the other hand, if Warsh sticks to a cautious, predictable position and inflation keeps going down, metals might stay at lower levels.
One possible scenario is choppy, sideways trading, where prices move up and down in wide ranges as investors think about each new piece of data and political news. In that situation, short-term traders may do well with volatility, while long-term holders care more about whether metals keep beating inflation over the years instead of days.
Individual investors who are thinking about metals now have to weigh the risks. It may seem like a good idea to buy after a big drop, but prices could change again if there is another policy shock from Washington, Tehran, or somewhere else. By mixing precious metals with other assets like bonds, stocks, and cash, you can lessen the effects of these sudden changes while still having some protection against financial or political stress.
