Gold and Silver Extend Slide as Fed Speculation Rattles Markets

Gold and silver prices continued to retreat in Asian trading on Monday, extending a brutal sell-off from late last week that was sparked by political developments in Washington.

Spot gold was down 3.5% to approximately $4,724 per troy ounce in late Sunday trading (ET), after tumbling more than 10% on Friday. Despite the recent pressure, bullion has still gained roughly 10% year-to-date. Silver followed a similar path, falling 2% to around $83.40 an ounce after Friday's dramatic 36% plunge. The white metal retains a 19% gain for 2024.

The catalyst for the volatility was former President Donald Trump's announcement that he would nominate Kevin Warsh to lead the Federal Reserve upon Chair Jerome Powell's term expiration in May. Markets perceive Warsh as a more hawkish candidate who would prioritize the central bank's independence and aggressively unwind its balance sheet.

"The prospect of a Fed chair committed to quantitative tightening reverses the 'debasement trade' narrative that has fueled metals," explained Vishnu Varathan, Head of Economics & Strategy for Asia ex-Japan at Mizuho Bank. "A stronger dollar outlook and reduced inflation fears naturally weigh on non-yielding assets like gold and silver."

This downturn interrupts a remarkable year-long rally for precious metals, driven historically by robust central bank accumulation—particularly from China and other emerging markets—and persistent geopolitical friction from Ukraine to the Middle East.

Analysts note these foundational supports haven't vanished. "The structural drivers for gold remain intact," said Daniel Hynes, Senior Commodity Strategist at ANZ. "The ongoing recalibration of the global order and the U.S.'s role within it continues to underpin safe-haven demand. I expect volatility, but the floor for prices is still elevated."

The market now grapples with a clash between a new, potential Fed-driven headwind and these long-term tailwinds. While speculative froth, partly tied to Chinese retail demand, may ease, institutional and official sector buying is expected to provide a buffer against a steeper collapse.

Market Voices: A Split on the Path Ahead

Michael Chen, Portfolio Manager at Horizon Capital (Singapore): "This is a healthy correction in an overheated market. The Warsh speculation is a reminder that monetary policy can turn. However, the geopolitical and de-dollarization trends supporting gold are secular, not cyclical. We're using dips to accumulate."

Sarah Wilkinson, Independent Precious Metals Trader (London): "The reaction is overblown. The nomination is just that—a nomination. The Senate confirmation process is long, and Warsh's views from 15 years ago may not apply today. This smells of algorithmic panic rather than a fundamental repricing."

Robert "Bull" Marino, Host of 'Hard Assets' Podcast (Texas): "This is a blatant manipulation attempt to shake out the little guy before the next leg up. The establishment hates that gold is exposing a failing fiscal and monetary system. Warsh? Powell? It doesn't matter who's driving the bus off the cliff. Physical buying will smash these paper price games soon enough."

Priya Sharma, Economist at Global Insight Council (Mumbai): "For emerging market central banks, this volatility is noise. Their strategic diversification away from the U.S. dollar is a multi-year program. If prices drop further, their buying programs may simply become more aggressive, putting a firm floor under the market."