Gold prices tumble on 'Kevin Warsh shock'…but the medium- to long-term uptrend remains intact

Fed may delay rate cuts

Short-term price volatility likely to be high

Buying interest in gold…geopolitical risks too

Gold prices plunged after US President Donald Trump nominated Kevin Warsh, a former Federal Reserve governor, as a candidate to become the next Fed chair. The shake-up to the Fed’s rate outlook triggered a wave of correction pressure across the broader precious metals market, analysts said.

According to Reuters on the 3rd, spot gold fell 9.5% from the previous session to $4,883.62 per troy ounce on the 31st of last month. The reversal came just a day after prices surged to as high as $5,594.82, breaking above the $5,500 mark for the first time ever. On the New York Mercantile Exchange (COMEX), April-delivery gold futures also settled at $4,745.10 per troy ounce, down 11.4% from the prior session.

International gold prices had extended a record rally as buying accelerated even after first topping $5,000 on the 26th. A confluence of geopolitical risks, expectations for rate cuts and central-bank demand drove a sharp run-up in a short period. But with the pace of gains having been excessive, the pullback was also abrupt, according to market assessments.

Silver fell even more than gold. Spot silver plunged 27.7% from the previous session to $83.99 per troy ounce, dropping below the $100 level. It marked the largest one-day decline since 1982. Intraday, prices slid as far as $77.72, underscoring extreme volatility. The selloff in gold and silver dragged other precious metals lower as well, including platinum (-19.18%) and palladium (-15.7%).

The immediate catalyst for the decline was a shift in expectations for US monetary policy. Warsh, whom Trump tapped as a Fed chair candidate, is widely viewed as cautious on monetary easing and strongly focused on inflation risks. Markets interpreted the move as a signal that the Fed’s pace of rate cuts could slow. That, analysts said, weighed on rate-sensitive gold and silver.

In addition, the US January producer price index (PPI) came in stronger than expected, further undermining expectations for rate cuts.

Experts say it is too early to view the plunge as the end of gold’s medium- to long-term uptrend. Still, there is broad agreement that a short-term correction accompanied by sharply higher volatility is unavoidable. That is because recent gold prices have been reacting more sensitively to leveraged positions in the futures and options markets and the direction of the dollar than to physical demand or long-term fundamentals. Bloomberg said, “While Warsh’s nomination did become a direct trigger for the correction in gold and silver, it feels somewhat late in timing,” adding, “The market was already looking for a rationale to unwind what had become a parabolic surge.”

Some also note that downside resilience remains significant over the medium term. The reasoning is that central banks around the world continue to buy gold, while geopolitical risks and sources of instability in the global financial system have not been fully resolved.

By Mi-hyun Cho mwise@hankyung.com