Gold suffered a major correction last Friday, with its price falling by more than 10% to around $4’800 per ounce. Gold further deepened its losses on Monday, when its price temporarily fell to nearly $4’400 per ounce. And with an intraday loss of around 30% on Friday, silver experienced its largest drawdown since 1980.
Geopolitical events created a ‘perfect storm’
The recent correction in the precious metal space can be largely seen in the context of the exuberant gains of both gold and silver this year. At their late-January peaks, gold was up almost 30% and silver up almost 70% from their prices at the end of 2025. Within the first weeks of 2026, a flurry of developments on the geopolitical front, including the capture of Venezuelan President Maduro and President Trump’s military threats to Greenland increased investors interest in gold as a safe haven and in silver as a strategic material. Yet both have also attracted speculative inflows on a large scale, substantially contributing to their momentum as prices were propelled higher throughout January.
The sell-off relates to a stronger dollar
The nomination of Kevin Warsh as Fed Chair Powell’s successor is commonly cited as a main trigger for the recent sell-off. Yet Mr Warsh’s nomination has impacted the precious metal space primarily through a stronger US dollar. The precious metals rally had shown signs of exhaustion earlier last week. The upward trend in the silver price had slowed meaningfully in the last week of January and both gold and silver experienced a flash drop on the day following last week’s rate decision by the Fed. Hence, that the recent sell-off most likely relates to a combination of a stronger dollar and profit-taking at the end of the month.
Fed policy to turn more political
In principle, the nomination of Kevin Warsh is unlikely to be a game changer. The market perceives Mr Warsh as a hawk, given his vocal opposition to the second round of Quantitative Easing in 2011, providing him with more market credibility than other candidates. Yet he has recently changed his position, expressing the view that the AI boom itself represents a disinflationary growth boom on the back of a productivity boost. This indicates that he will likely support lower policy rates. Moreover, he has expressed concerns about overly data-dependent policies, suggesting that he should not be viewed as a traditional hawk. He is expected to work more closely with the US Treasury on current challenges such as debt management and he is seen as politically loyal, given his personal relations with Mr. Trump’s orbit. A first test could come as early as this summer. Tariffs may keep inflation sticky, and a divided Fed may want to stay on hold, while President Trump expects the new Chair to deliver.
The case for higher gold prices remains in place
Our fundamental case for higher gold prices over the medium-term remains valid. If confirmed by US Congress, Kevin Warsh will likely pursue a more dovish monetary policy than his predecessor. Geopolitical uncertainty is poised to remain elevated, and the rule of law will likely remain challenged, which will continue to dent trust in the US dollar. Less demand for dollar-denominated reserve assets also argues for lower fair-value levels for dollar exchange rates than in the past. Gold is also expected to benefit ahead of the US midterm elections. The magnitude of the recent sell-off is reminiscent of the October 2025 drawdown, which ended after institutional buyers of gold jumped in. In our view, it would require an additional important trigger to push gold below the psychologically important $4’000 -per-ounce mark. Consequently, the recent correction can be seen as an entry opportunity for gold, although prices will remain volatile in the near term. The equity -gold correlation has turned slightly positive in late 2025, implying that gold may be less expedient as a hedge against drawdowns in the equity space.
Risk/return balance less favourable for silver
While silver should be supported at a markedly higher price level than in the first half of 2025, it will be difficult for silver to outperform gold from here. Moreover, the metal is likely exposed to a potential sell-off in AI-related risk assets.
By Claudio Wewel, FX strategist at J. Safra Sarasin Sustainable Asset Management
