After getting battered since late last week in a dramatic sell-off, precious metals rebounded and clawed back losses on Tuesday as investors continue to digest the implications of President Donald Trump’s announcement of Kevin Warsh as the next chair of the US Federal Reserve.
Gold rose more than 3% in Asian trading to $4,822 an ounce and silver surged 5.3% to $83.50. Investors were likely drawn to the historically low prices after gold spent most of 2025 on a steady rise.
Fed nomination still cause for unease
Last week's nomination has sharpened debate over the future direction of US monetary policy and the degree of political pressure the Fed may face, prompting a swift reassessment of crowded positions across precious metals.
Spot gold fell as much as 10% in early trading on Monday, while silver plunged up to 16%, following Friday’s rout that marked the largest intraday decline on record for the white metal.
The pace of the retreat reflected how stretched positioning had become after months of relentless gains, as investors chased the rally amid heightened geopolitical tensions and expectations of easier US policy.
“Crowded one-sided trades unwind. FOMO [Fear of missing out] and chasing the rally are rarely, if ever, a case of economic fundamentals,” said Marcus Dewsnap, head of fixed income strategy at Informa Global Markets.
“Reality seems to have caught up with metals markets, after what for precious metals especially has been a parabolic rise.”
The initial trigger came late last week, when news of Warsh’s nomination sent the US dollar higher and forced investors to reprice the outlook for interest rates.
“The sharp selloff on Friday followed news that US President Donald Trump intends to nominate Kevin Warsh as the next Federal Reserve chair – a development that boosted the US dollar and reinforced expectations of a more hawkish policy stance,” said Ewa Manthey, commodities strategist at ING, and Warren Patterson, head of commodities strategy.
“While a correction was overdue after the intense rally, the scale of Friday’s decline far exceeded most expectations,” the ING report continued.
Why the Fed matters for gold
Gold and silver are particularly sensitive to US interest-rate expectations, as higher rates raise the opportunity cost of holding non-yielding assets, while a stronger dollar makes metals more expensive for overseas buyers.
Although Warsh has voiced support for aspects of President Trump’s vision for the Fed, including rate cuts, markets do not view him as an unequivocal advocate of aggressive monetary easing.
“Warsh isn’t thought to be in the dramatic US interest-rate cut camp to the extent that President Trump desires,” Dewsnap said.
“As far as Fed independence is concerned, he is currently considered a safer pair of hands than other named contenders.”
Reassessment has been swift
Investor caution has been evident in exchange-traded funds, with silver holdings falling for a seventh consecutive session to their lowest level since November 2025.
Futures data also show speculators cutting back sharply on bullish bets, signalling a broader retreat from the sector.
“CFTC positioning shows a cooling in speculative interest across precious metals,” the ING report said.
“Managed money net longs in COMEX gold fell by 17,741 lots last week… Speculators also cut net longs in silver… taking positioning to its lowest since February 2024.”
Margins rise, volatility bites
Market stress has been amplified by mechanical factors, with CME Group set to raise margin requirements on COMEX gold and silver futures after last week’s historic swings.
The move is forcing traders to post more collateral or reduce exposure, a dynamic that can accelerate sell-offs in heavily leveraged markets.
“When a market has experienced a rise well beyond anything fundamentals can explain, it doesn’t take much to open the exit door,” Dewsnap said.
“The extent of the one-sided positioning makes for what is termed a narrow exit… there aren’t enough buyers to deal with the selling cascade, which exacerbates the price drop.”
Attention is now turning to Asia, where Chinese investors have historically provided support during price dips. However, with volatility elevated, participation may be more cautious than usual.
“With volatility spiking and the Lunar New Year approaching, traders are likely to pare back positions and reduce risk,” the ING analysts said.
“Price direction in the near term will hinge on the extent of dip-buying from Chinese investors following Friday’s retreat.”
Outlook remains fragile
For now, the precious metals market remains at the mercy of macro forces, with little clarity on how quickly sentiment will stabilise.
Investors are watching US data closely for clues on real interest rates and the dollar’s next move, both of which will be shaped by expectations around the Fed’s future direction.
“Overall, volatility across precious metals is likely to remain elevated in the near term,” the ING analysis concluded.
“For gold and silver, macro uncertainty, real rate expectations, and USD direction will continue to dominate sentiment.”
This article has been updated to reflect shifting market conditions.
