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Gold futures collapsed 7.5% to $4,992 per ounce during European trading hours before recovering slightly, while silver ETFs crashed up to 24% as the white metal plunged from record highs above $121 per ounce reached just the day before. The selloff marked the strongest precious metals correction since early 2013, ending what had been the most spectacular rally in precious metals history.
Dollar Strength Crushes Safe Haven Demand
The dramatic reversal came after reports surfaced that Trump would nominate former Federal Reserve Governor Kevin Warsh to replace Jerome Powell as Fed Chair. Warsh, widely viewed as a more hawkish monetary policy advocate, prompted investors to reassess their precious metals positions amid expectations of tighter credit conditions and a stronger dollar trajectory.
The Dollar Index surged 1.2% to its highest level in three weeks, creating immediate headwinds for dollar-denominated commodities. MCX gold prices in India crashed ₹24,000 from their record high of ₹1,93,096 per 10 grams, while silver plunged ₹68,000 from its peak of ₹4,20,048 per kilogram.
Record-Breaking Rally Comes to Abrupt Halt
Despite the violent correction, both metals remained positioned for their strongest monthly performance in decades. Gold prices had surged 24% during January 2026, marking the largest monthly advance since January 1980, while silver's 58% monthly gain still represented the best performance on record for the white metal.
The metals had reached unprecedented territory earlier in the week, with gold touching $5,594.82 per ounce and silver hitting $121.64, driven by persistent geopolitical tensions, central bank purchases, and industrial demand concerns. World Gold Council data released Friday showed total gold demand exceeded 5,000 tonnes for the first time in 2025, with investment flows reaching $555 billion.
Technical Indicators Signal Overheated Market
Market analysts pointed to severely overbought technical conditions as a primary catalyst for the selloff. Momentum indicators had reached extreme levels following the vertical rally, with silver's 165% gain over the past 12 months triggering widespread profit-taking among institutional investors.
"The mania phase was visible in both gold and silver with unusual moves, sharp spikes, and gap-up openings," said Ajay Kedia, Director of Kedia Advisory. "Charts looked overbought for months - fundamentals remain strong, but valuations were overstretched."
Industrial Demand Concerns Mount
Silver's decline proved particularly severe due to its dual role as both a precious and industrial metal. The white metal's exposure to manufacturing and technology sectors made it vulnerable to profit-taking as investors questioned sustainability of recent price levels.
MCX silver contracts plummeted 15% during intraday trading, with March futures hitting ₹3,51,906 per kilogram. Silver ETFs bore the brunt of selling pressure, with Motilal Oswal Silver ETF crashing 24.46% and SBI Silver ETF declining 22.40%.
Fed Policy Uncertainty Drives Volatility
Warsh's nomination introduced fresh uncertainty about monetary policy direction, with the former Fed governor known for advocating tighter financial conditions during previous economic cycles. His potential appointment suggested Trump's administration might pursue more aggressive inflation-fighting measures than previously anticipated.
The prospect of extended higher interest rates reduced the appeal of non-yielding precious metals, while strengthening the dollar made commodities more expensive for international buyers. Government shutdown negotiations between Trump and Senate Democrats also weighed on safe-haven demand.
Market Outlook Remains Constructive Despite Correction
Despite the dramatic selloff, investment banks maintained bullish long-term forecasts for precious metals. UBS raised its gold target to $6,200 per ounce for 2026, while Deutsche Bank projected prices could reach $6,000 during the year.
Structural factors including central bank diversification away from dollar reserves, ongoing geopolitical tensions, and supply constraints continued to support higher price levels over the medium term. The correction was viewed by many analysts as a healthy consolidation following the parabolic advance.
Key support levels emerged around $4,860 for gold and $78 for silver, with technical analysts monitoring these thresholds for signs of stabilization. Any sustained break below these levels could trigger additional selling pressure toward $4,240 for gold and $65 for silver.The precious metals crash highlighted the volatile nature of commodity markets during periods of extreme momentum, while underlying fundamentals suggested the bull market structure remained intact despite the severe correction.
Mentioned tickers: GLD, SLV, IAU, SIVR, SGOL, PSLV
