Historic metals rout: Chinese speculation and Fed shock send gold and silver tumbling
Gold fell 9% and silver suffered a record one-day drop after a frenzied rally—fuelled by Chinese speculation—reversed on a stronger dollar following Donald Trump’s plan to install Kevin Warsh at the Fed.
A breakneck rally in precious metals has flipped into one of the sharpest sell-offs traders can remember, after weeks of outsized gains that many market participants said had become detached from fundamentals.
Silver plunged by around $40 an ounce in less than 20 hours, with Friday’s fall the biggest daily drop on record, while gold slid 9% in its worst session in decades. The rout spilled into other metals, with copper also hit as positions unwound.
“In my career it’s definitely the wildest that I have seen,” said Dominik Sperzel, head of trading at Heraeus Precious Metals, adding that moves of this scale undermine gold’s traditional role as a symbol of stability.
A rally powered by “hot money”
The surge into late January accelerated as speculative flows from China piled into metals from gold and silver to copper, alongside trend-following funds that amplify momentum when prices rise quickly. Analysts described the market as “parabolic”, “frenzied” and at times “untradeable”, with Nicky Shiels of MKS PAMP SA calling January 2026 the most volatile month in precious-metals history.
Physical buying also intensified as households rushed to secure bars and jewellery, echoing episodes of precious-metals mania seen in past decades.
What triggered the crash
The immediate catalyst for the reversal was a sharp move in the US dollar after President Donald Trump signalled he would nominate Kevin Warsh to lead the Federal Reserve—a development investors interpreted as potentially more hawkish, lifting the currency and pressuring dollar-priced metals.
Selling then accelerated as CME Group raised margin requirements on metal futures, forcing some leveraged traders to cut positions quickly.
Why China matters next
After the shock, traders’ focus has swung back to China—both for potential bargain-hunting and for signs of tighter controls on retail speculation. Chinese banks moved to curb risks tied to retail gold accumulation products, including higher minimum deposits and quota-style limits during holidays.
With Lunar New Year traditionally a strong season for bullion demand, some analysts expect dip-buying in gold to emerge sooner than in silver, where investors may stay cautious after the record slump.
For now, the episode has delivered a blunt reminder that even “safe-haven” markets can become two-way trades—especially when a speculative surge meets a stronger dollar, tighter trading conditions, and a sudden shift in expectations for US monetary policy.
