Precious Metals Retreat as Warsh Nomination Cools 'FOMO' Rally
The relentless rally in gold and silver prices stumbled over the weekend, with both metals posting significant declines. The move follows the firming up of expectations that former Federal Reserve Governor Kevin Warsh will be nominated as the next chair of the central bank.
As of Monday morning, gold traded near $4,700 per troy ounce, a notable pullback after spending much of January above the $5,000 mark. Silver followed suit, falling to around $80 per ounce. The downturn began in earnest on Thursday as Warsh's nomination gained traction.
For over a year, precious metals have been a favored hedge against economic uncertainty, driven by concerns over currency debasement, central bank policies, and soaring national debt. Warsh's perceived policy stance, however, appears to have given some investors pause. Markets view him as relatively independent from the current administration and as an advocate for a tighter balance sheet policy, which could reduce the Fed's role in backstopping government borrowing.
"The 'fear of missing out' momentum that propelled prices has clearly hit a wall," said Deutsche Bank's Jim Reid. "While the debasement trade had become disconnected from fundamentals, it often takes a single catalyst—like a key personnel change—to trigger a broader repositioning, particularly in leveraged markets." Reid noted the single-day drop for gold was its steepest since 2013.
Other analysts downplayed the macroeconomic significance of the correction. Paul Donovan, Chief Economist at UBS, commented, "This volatility has limited economic import. While some will frame it as a fundamental shift, it looks more like a classic case of an exhausted speculative rally. A return to prices aligned with economic fundamentals is arguably positive, as it prevents resource misallocation."
The sell-off comes as indicators flagged rising instability. Bank of America's Bubble Risk Indicator for gold recently neared a level of 1, signaling heightened two-tailed risk, according to economist Candace Browning Platt.
Despite the pullback, some institutions see a path higher. Deutsche Bank maintains a $6,000/oz long-term target for gold. Analyst Michael Hsueh cites three supporting factors: unchanged long-term investor intentions to hedge against volatility, the persistent rationale for holding gold, and China's growing influence as a driver of demand. Chinese gold ETF purchases, if they continue at January's pace, could reach a new annual high in 2025.
"Significant institutional investors have signaled a multi-year diversification away from dollar assets," Hsueh noted. "If this trend is reaffirmed, it could bolster market confidence much like central bank buying has in the past."
Market Voices: A Split on the Sell-Off's Meaning
Eleanor Vance, Portfolio Manager at Sterling Trust: "This is a healthy breather. The run-up was too fast. Warsh's nomination simply provided a tangible reason to take profits. The core reasons for holding gold—geopolitical risk, fiscal concerns—haven't vanished."
Marcus Thorne, Independent Commodities Trader: "Finally! This was a bubble fueled by narrative, not value. Warsh's potential stance on the balance sheet exposes the weak foundation of the recent rally. It's a wake-up call for speculators who thought prices only go up."
Dr. Aris Fernandez, Economics Professor at Carlton University: "The reaction is overstated. One nominee doesn't alter the structural trends of debt and diversification. This is short-term noise in a long-term reallocation story. China's demand trajectory is far more critical."
Rebecca Shaw, Retail Investor Advocate: "It's infuriating. The big banks talk up the price for months, then call it a 'healthy correction' when the little guy gets nervous and sells. They create the FOMO, profit from it, and then blame 'exhaustion' when it collapses. The game is rigged."
This story was originally featured on Fortune.com.