Record Highs to Forced Unwinds: A Violent Reset in Gold and Silver

Gold and silver markets experienced extreme volatility over the past week, marked by a sharp reversal from record highs as crowded positioning rapidly. After peaking above US$5,500/oz in late January, spot gold plunged more than 9% on Friday, its steepest one-day drop since 1983, while silver collapsed by as much as 27% intraday, underscoring the fragility of a rally that had turned parabolic. Prices partially stabilized early this week, with gold rebounding to around US$4,790/oz and silver recovering to roughly US$82.50/oz, though both remain well below recent highs. 

The key catalyst for the sell-off was the nomination of Kevin Warsh as US Federal Reserve Chair, a move welcomed by financial markets and interpreted as hawkish. The announcement lifted the US dollar by around 1%, undermining dollar-denominated precious metals. Expectations that Warsh would prioritize inflation control reduced confidence in near-term monetary easing, triggering aggressive profit-taking across leveraged futures, options, and bullion-backed ETFs. 

Market structure amplified the move. Elevated volatility strained dealer balance sheets, liquidity deteriorated, and margin calls forced rapid deleveraging. In silver, the unwind of leveraged ETFs — notably ProShares Ultra Silver — accelerated selling, with billions of dollars in futures liquidated in a single session. Chinese speculative flows, which had fueled much of January’s upside, flipped decisively, adding pressure during Asian trading hours. 

Despite the correction, gold remains around 70% higher year-on-year, supported by ongoing central bank demand and long-term concerns over geopolitics, tariffs, and reserve diversification. Physical buying in China has begun to re-emerge on lower prices ahead of the Lunar New Year, offering near-term support. While silver’s smaller, more volatile market faces further turbulence, analysts broadly view the recent collapse as a violent positioning reset rather than the end of the precious metals bull cycle.