Gold and Silver Retreat as ‘FOMO’ Rally Fizzles on Warsh Fed News

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The persistent upward climb in precious metals prices has finally stumbled, as gold and silver both fell over the weekend.

Currently, gold trades at $4,700 per Troy Ounce, after remaining well above $5,000 for much of late January. Silver has also declined to $80 per Troy Ounce, following a similar drop on Thursday when news emerged.

Viewed as safe-haven assets, precious metal prices had risen consistently over the past year amid economic instability. However, Warsh, a former Federal Reserve governor known for a hawkish stance on the Fed’s balance sheet, prompted a shift in market sentiment last week.

A significant portion of the enthusiasm for gold and silver stemmed from a case for diversifying portfolios beyond traditional assets like bonds or cash. This was fueled by concerns over institutional issues including the U.S. dollar’s value and central bank independence.

Warsh addresses two of these concerns. Markets perceive him as not overly aligned with the Trump administration and as an advocate for a tighter monetary policy stance, which would reduce the Fed’s role in supporting government borrowing.

As Jim Reid observed this morning, gold saw its largest one-day fall since 2013. He communicated to clients: “Warsh is recognized as more balance-sheet hawkish than other candidates, countering the dominant currency debasement story that has buoyed precious metals. Still, price movements had already diverged from rational debate on debasement, yet it frequently takes just a minor trigger to spark a wider correction, particularly when leverage is involved.”

At UBS, chief economist Paul Donovan concurred that the correction was not especially meaningful, though he doubted it was a response to macro factors like the Fed. He stated: “The steep drop in gold and silver prices carries relatively minor economic importance. While some will try to frame this as a response to core economic principles, it appears more probable that the ‘fear of missing out’ dynamic simply ran out of momentum.”

“The price surge occurred too quickly to generate substantial wealth effects, so a correction toward a price more aligned with economic fundamentals would be viewed as economically beneficial (preventing a misallocation of resources).”

Similarly, Bank of America’s Candace Browning Platt noted in a recent memo that gold’s three-month rally has been accompanied by “increasing instability.” The bank’s Bubble Risk Indicator for the asset approached 1 this week, “indicating risk in both directions,” the economist added.

A blip not a downturn

Despite this, Deutsche Bank maintains a positive outlook on gold’s price target, forecasting it will reach $6,000 per ounce.

Research analyst Michael Hsueh wrote today that the precious metal’s price will edge higher for three key reasons. First, long-term investor sentiment has not deteriorated significantly; second, the original rationale for purchasing gold (as a hedge against potential fundamental volatility) remains intact; and third, China is becoming an increasingly important force in the precious metals market.

In China, for instance, Hsueh noted that gold ETF inflows could reach a record this year if January’s purchase rates are sustained annually, following a strong increase in 2025.

“It is risky to presume we understand the mindset of the typical precious metals investor, or even to assume a single typical investor exists. However, major institutional investors have indicated the likelihood of a gradual, multi-year shift away from dollar-denominated assets, and we have no evidence this has altered,” he said.

“If this tendency is confirmed in the coming months, we believe it could significantly boost confidence among other investors, similar to the effect of central bank purchases historically.”

Here’s a snapshot of the markets ahead of the opening bell in New York this morning:

  • S&P 500 futures were down 0.96%.
  • The STOXX Europe 600 was flat in early trading.
  • The U.K.’s FTSE 100 was up 0.26% in early trading.
  • Japan’s Nikkei 225 was down 1.25%.
  • China’s CSI 300 was down 2.13%.
  • The South Korea KOSPI was down 5.26%.
  • India’s Nifty 50 was up 1.06%.
  • Bitcoin was down to $77.67k.