Gold Falls Significantly After Record-Setting Rally
The precious metals market experienced a major shakeup. Gold and silver recorded their deepest daily declines in years, reversing sharply after a "sharp" rally that had previously pushed prices to all-time highs. The movement felt like a whipsaw: rising rapidly, then falling abruptly in a short period of time.
On Friday, gold fell as much as 8% and broke below US$5,000 an ounce, while silver plunged below US$100. The selling wave also spread to other metals: copper fell nearly 4% in London, after surging the day before and breaking through US$14,000 a ton for the first time—also its largest intraday surge since 2008.
Over the past year, investor demand for precious metals has soared—setting record after record, fueling increasingly extreme volatility. This pressure intensified in January, when investors flocked to safe-haven assets due to concerns about currency debasement, the Fed's independence, trade wars, and geopolitical tensions. However, a too-rapid rally leaves the market vulnerable to a breakout when a trigger arises.
The trigger for this correction came from the sudden strengthening of the US dollar, following reports that the Trump administration was preparing Kevin Warsh as its candidate for Fed Chair—and the news was later confirmed. The strengthening dollar made precious metals more expensive for global buyers, while also hurting market sentiment, which had previously been busy buying gold and silver when Trump had signaled he was okay with a weakening dollar. One analyst called this movement reminiscent of a "classic story": fast up, fast down—as if the market was just waiting for an excuse to unwind a rally that had become too parabolic.
The price surge and volatility caused many market participants to adjust their risk models and positions. Furthermore, the massive buying of call options contributed to the mechanical upward momentum—as option sellers typically hedge by buying the underlying asset when the price rises, thus intensifying the upward momentum. When the price reverses, the effect can be equally powerful: mass unwinding of positions and profit-taking.
Despite the plunge, monthly performance remained strong: gold still rose around 18% throughout January, approaching its sharpest monthly gain since 1980, while silver continued to rally more than 40% since the start of the year. Several analysts believe the scale of the correction suggests many traders were indeed waiting for a moment to take profits after the rapid rise. From a technical perspective, cautionary signals also emerged—for example, gold's RSI briefly touched 90, a very rare level that usually indicates overbought conditions.
Source: Newsmaker.id
