Gold and silver extended a sharp sell-off on Monday, deepening losses from a historic plunge late last week as a stronger dollar and profit-taking sapped momentum from a rally that had pushed both metals to record highs.
Spot gold fell about 6 percent to US$4,538 an ounce, following a near 10 percent collapse on Friday that dragged prices below the psychologically important $5,000 level.
Silver came under even heavier pressure, dropping more than 12 percent to US$74.36 an ounce, after tumbling 30% on Friday, its steepest one-day fall since March 1980.
The latest declines mark a violent reversal for precious metals, which had surged in recent weeks on safe-haven demand, speculative inflows and expectations of U.S. interest-rate cuts.
Analysts said Friday’s rout was triggered by a sudden reassessment of the outlook for U.S. monetary policy after President Donald Trump nominated former Federal Reserve governor Kevin Warsh to succeed Fed Chair Jerome Powell when Powell’s term ends in May.
“The ‘Buy America’ trade is back,” said José Torres, senior economist at Interactive Brokers. “The independence bid that drove gold and silver to record heights just below US$5,600 and $122 an ounce has started to unravel.”
The nomination has bolstered expectations of a firmer monetary stance, supported the U.S. dollar and pressuring non-yielding assets such as gold and silver.
The dollar index, which measures the greenback against a basket of major currencies, has risen about 0.8 percent since Thursday, making dollar-priced metals more expensive for overseas buyers.
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Gold typically benefits from lower interest rates and a weaker dollar, while higher yields increase the opportunity cost of holding bullion relative to interest-bearing assets such as U.S. Treasuries.
Christopher Forbes, head of Asia and the Middle East at CMC Markets, said gold’s sharp retreat reflected a classic correction following an extraordinary rally rather than a fundamental breakdown in the longer-term bullish outlook.
“This is a classic air pocket after an exceptional run,” Forbes said. “Profit-taking, a firmer dollar and fresh headlines out of Washington have knocked the froth off a very crowded trade.”
Warsh has previously argued for tighter monetary conditions, and his nomination has reinforced expectations that U.S. policy could remain restrictive for longer than markets had anticipated.
At the same time, geopolitical risk premiums embedded in gold prices have eased after comments from Trump suggesting a possible deal with Iran, reducing immediate safe-haven demand. U.S. crude oil futures were down about 4 percent on Monday, reflecting lower perceived geopolitical risk.
Despite the sharp pullback, analysts said precious metals remain elevated by historical standards and could remain volatile in the near term as investors reassess policy signals from Washington.
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“In the near term, gold prices are likely to stay high but volatile as markets wait for clarity on Warsh’s policy direction,” Forbes said.
Silver and gold remain up on a year-to-date basis despite the sell-off. Silver has gained around 16 percent since the start of the year, while gold is up about 8 percent.
Both metals staged record-breaking rallies last year, with gold rising about 65 percent and silver surging 145 percent, driven by aggressive central bank buying, geopolitical tensions and expectations of global monetary easing.
Forbes said renewed dollar weakness or confirmation of a more dovish stance from the incoming Fed leadership could attract buyers back into the market.
“Dip-buyers will return if the Fed continues easing while growth and inflation remain uneven,” he said, adding that gold could revisit recent highs over a 12-month horizon.
