Following a sharp rise in volatility over the past few days, gold and silver have suffered a severe correction in what could be the biggest crash in history. Let’s take stock of the situation.
Gold and silver see sharp correction
After weeks of gains, precious metals experienced what is likely the biggest crash in financial market history on Friday. Spot prices show a 9.6% drop for gold, 26.29% for silver, 5% for copper, and 15% for palladium.
In total, $7 trillion in market capitalization is estimated to have evaporated within 36 hours. Having fallen to $85 per ounce, silver reportedly suffered its worst day since 1921, while the gold futures chart shows a decline of nearly 13% from its all-time high (ATH):
Gold futures prices (hourly data)
Having fallen from $5,600 to $4,700 in less than two days, an ounce of gold is now valued at $4,908 on financial markets, thereby erasing a week of gains.
On X, the StockMarket.News account shares an interesting theory suggesting that the announcement of the next chair of the U.S. Federal Reserve (Fed) may have played a role. Indeed, on Friday, Donald Trump nominated Kevin Warsh to succeed Jerome Powell as Chair of the Federal Reserve Board of Governors.
Given his past experience, Kevin Warsh is viewed by many observers as a staunch opponent of inflation—or at least of tools that expand the Fed’s balance sheet, such as quantitative easing. According to StockMarket.News, this is what reportedly surprised financial markets, which had been betting on a candidate whose profile would be more accommodating to Donald Trump’s pressures and a weaker dollar.
Nevertheless, Kevin Warsh has reportedly also expressed support for rate cuts recently, and if his nomination is confirmed by the Senate, we will need to quickly gauge the policy he intends to implement at the Fed.
Furthermore, it is worth noting that Donald Trump’s announcement was made several hours before the peak of the crash observed in precious metals. Moreover, increased volatility in this asset class had already been evident for several days.
In any case, the fact remains that the chain reaction inherent in this type of movement has unfolded on an unprecedented scale, namely leveraged positions being liquidated, with forced sales triggering further forced liquidations, which in turn amplify the chain reaction.
In recent days, we have warned you about FOMO syndrome, which is easy to succumb to during such phases of euphoria. While there is nothing to prevent the market from rebounding after such a sell-off, we reiterate our call for caution regarding the risks that such volatility poses to an unprepared investor.
