Gold and silver are in freefall again today, extending losses from last Friday's violent sell-off. Strengthening dollar dynamics and aggressive profit-taking are stripping momentum from a rally that, only days ago, had propelled precious metals to historic highs.
The spot price of gold is retreating by approximately 6% to $4,538 per ounce, having already recorded a near 10% drop on Friday when prices crashed below the $5,000 threshold. This 16.37% decline over three days represents a record-breaking loss of approximately $6 trillion in terms of gold's market value. Silver, which had surged alongside gold due to safe-haven demand and intense speculative inflows, also remains under heavy pressure following Friday's 30% plunge—its worst daily performance since March 1980. Spot prices for the "white metal" were down over 12%, trading at $74.36 per ounce.
Shift in interest rate outlook
According to analysts, the correction followed a violent trend reversal on Friday when optimism surrounding potential US interest rate cuts collided with a sudden reassessment of Federal Reserve leadership. This followed President Donald Trump's decision to nominate former Fed Governor Kevin Warsh as the successor to Jerome Powell, whose term expires in May.
"The 'Buy America' trade is returning, and as a result, the independence bet that had driven gold and silver to exorbitant historic highs—just below $5,600 and $122 per ounce respectively early Thursday morning—is beginning to deflate," noted José Torres, senior economist at Interactive Brokers, in a memo on Monday. Christopher Forbes, head of Asia and Middle East at CMC Markets, noted that gold’s sharp retreat reflects a classic market correction after an exceptionally strong rally, rather than a collapse of the long-term bullish trend. "The gold pullback is a classic 'air pocket' after an impressive rise," Forbes stated. "Profit-taking, a strengthening dollar, and new geopolitical news from Washington have removed the froth from an overextended trade."
The role of the dollar
The dollar index, which measures the strength of the US currency against a basket of peers, has gained approximately 0.8% since Thursday. A stronger dollar makes gold—which is priced in dollars—less attractive to foreign buyers, while higher interest rates increase the opportunity cost of holding a non-yielding metal, making US Treasuries a more attractive safe haven.
Warsh is a proponent of tighter monetary policy, and the announcement of his candidacy for the Fed chairmanship further boosted the dollar. Meanwhile, statements from Trump leaving open the possibility of a deal with Iran appeared to reduce geopolitical concerns, with WTI crude contracts falling about 4% on Monday. In the short term, gold prices are expected to remain at high but volatile levels as markets seek greater clarity on the direction of Warsh's policy, Forbes said. Despite the recent correction, silver prices are still up about 16% since the start of the year, while gold remains approximately 8% higher on an annual basis. Both metals saw spectacular rallies last year, with gold rising about 65% and silver 145%.
"A new weakening of the dollar or confirmation of a more dovish stance from Warsh will bring buyers back into the corrections," said Forbes, who maintains a positive long-term view on precious metals over a 12-month horizon. He added that gold could return to recent highs if the Fed continues its easing policy while growth and inflation remain uneven. "The fact that markets are selling precious metals alongside US equities suggests that investors perceive Warsh as more 'hawkish'," commented Vivek Dhar, commodities strategist at Commonwealth Bank of Australia (CBA), to Reuters. He added that the strengthening of the US dollar exerts additional pressure on precious metals and other commodities, including oil and base metals. Despite the recent correction, Dhar maintains his forecast for gold prices to reach $6,000 in the fourth quarter of the year.
‘Even good assets correct’
Katy Stoves, investment manager at British firm Mattioli Woods, told CNBC that these movements reflect a "wider reappraisal of concentration risk." She noted, "Just as tech stocks—and especially those linked to artificial intelligence—gathered disproportionate investment interest, so too did gold become the focus of intense positioning. When everyone moves in the same direction, even good assets can face heavy pressure as positions are unwound."
Toni Meadows, chief investment officer at BRI Wealth Management, estimated that gold's rise toward $5,000 "came too easily." He noted that while dollar weakness supported prices, the US currency is showing signs of stabilization, and central bank gold purchases have been limited in recent months. Meanwhile, Claudio Wewel, currency strategist at J. Safra Sarasin Sustainable Asset Management, noted that a "perfect storm" of geopolitical developments had pushed precious metals higher during the year, citing tensions in international relations. He added that in recent days, markets have been influenced by expectations regarding the next Fed chair.
Investors are awaiting the official announcement of Jerome Powell's successor, with former Fed Governor Kevin Warsh considered the favorite in prediction markets. "The market had priced in the possibility of a particularly dovish candidate, which supported gold. In the last 24 hours, however, the news flow has shifted," Wewel noted.
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