Gold has seen a significant rally over the past few years, bolstered by central banks increasing their holdings as an alternative to the dollar. This trend accelerated last year as Western investors turned to the so-called debasement trade. The market’s recent activity has been described by Nicky Shiels, head of metals strategy at MKS PAMP SA, as “parabolic,” “frenzied,” and “untradeable,” with January 2026 predicted to be noted in history as one of the most volatile months for precious metals.
Traders in Europe and the US have been tirelessly monitoring the market, particularly during the Asian trading hours when many drastic price changes have occurred. At a major coin conference in Germany, executives were glued to their phones, observing the unfolding crisis in disbelief. The trigger for a sharp drop in prices on Friday was the news that US President Donald Trump planned to nominate Kevin Warsh as the next Federal Reserve chair, causing the dollar to rise and the metals markets to react dramatically. There had been warnings of an impending correction in the metals markets, which had experienced relentless price surges in previous weeks.
The volatility reached its peak with silver witnessing its largest single-day fall on record — a staggering 26% drop, while gold fell 9%, marking its worst day in over a decade. Metal traders were already grappling with the aftermath of copper prices surging past $14,500 only to crash just as quickly. Traders have noted that metallic prices have become detached from supply and demand fundamentals, largely fueled by a surge of speculative purchasing from China.
Silver had historically traded above $40 an ounce only briefly, but exhausted traders were left stunned as it plummeted dramatically in less than 20 hours. The surge that preceded the fall was driven by an influx of Chinese investors, from individuals to major funds, pushing prices for metals like gold and silver to unprecedented heights, reminiscent of the market trends seen in 1979-1980.
The rush for precious metals has led to supply constraints, with some jewelers reporting sold-out products weeks in advance, and customers lining up for hours to make purchases. The trading in silver, a comparatively smaller market, saw substantial turnover, with the iShares Silver Trust recording over $40 billion in trading volume, dramatically contrasting with previous months’ norms.
Retail traders have become increasingly interested in options for betting on market climbs, inspired by previous surges in silver prices. However, the significant activity in options trading also creates conditions for rapid price fluctuations as market participants adjust their positions.
Political commentary regarding the dollar’s performance further propelled buying, with Gold reaching over $5,595 an ounce and silver peaking at $121 before the market’s swift reversal. The plunge was notably triggered by a turn in the dollar’s strength and an unexpected sell-off in Asia, leading to a staggering loss in market capitalization.
Attention now shifts to China as the market awaits the opening of trading, where the response to this volatile sell-off will be closely monitored. Retail investors looking to capitalize on price dips before the Lunar New Year could provide a new influx of demand. Despite the recent upheaval, signs of stability persist, with traders indicating a healthy ongoing interest in purchasing before the holiday season.
In a move to mitigate risks associated with retail gold accumulation, several Chinese banks have announced new restrictions, contributing to the market’s cautious sentiment. Yet there’s potential for recovery and renewed buying interest, particularly as we approach the traditional high season for gold purchases.