What happened: after a sun‑rise rally, both metals crashed sharply. Gold climbed to a record above $5,580 an ounce on Thursday, then plunged about 9% on Friday — its sharpest one‑day drop in years — and slid a further roughly 3.3% to near $4,545 on Monday before a partial rebound. Silver also spiked to a record $121.64 an ounce on Thursday and then plunged, falling roughly 41% by Monday to about $72 before starting to recover.
What pushed them up first: the run to new highs was driven by strong safe‑haven demand amid persistent inflation and geopolitical tensions — strained U.S.–China ties, Russia’s war in Ukraine and instability in the Middle East. Expectations that the Federal Reserve would soon cut rates weakened the dollar and supported bullion. A separate, powerful force was speculative option buying: heavy purchases of call options forced some option sellers to hedge by buying physical metal, creating a feedback loop that pushed prices higher.
What triggered the abrupt reversal: two developments flipped market sentiment and forced forced selling. First, U.S. President Donald Trump nominated Kevin Warsh as Fed chair on Friday; markets read the pick as signaling a more orthodox, inflation‑focused Fed less likely to deliver rapid, deep rate cuts. That view lifted the dollar and reduced bullion’s allure. Second, the Chicago Mercantile Exchange raised margin requirements for gold and silver futures traded on COMEX over the weekend. Higher margins increased collateral demands on leveraged positions, prompting many traders to liquidate to meet calls and accelerating the sell‑off.
How traders reacted: the speed and scale of the drop forced a rapid unwinding of crowded, leveraged bets. Liquidity evaporated at the worst moments, making exits costly and amplifying price declines — a dynamic observers compared to extreme deleveraging episodes in past crises. With many participants concentrated in bullish positions, the abrupt shift in sentiment left little room to absorb sales without pushing prices lower.
Is the rally over? Views diverge. Some see the moves as a severe correction to an overheated rally rather than a permanent end. Structural support remains: central bank purchases (notably by countries such as China, Poland and South Korea) continue to add steady demand as reserves are diversified, and retail demand — especially in Asia — remains substantial. Analysts also point to silver’s relatively stronger fundamentals: rising industrial demand for electronics, AI hardware and clean‑energy technologies, combined with underinvestment in mining, could support prices over time.
Near‑term outlook: a weaker dollar or signs that Fed policy will be more accommodating could draw dip buyers back and lift prices. In the days after the rout, both metals regained some ground: gold recovered more than 6% from its lows and silver more than 12% by early trading after the sell‑off.
Editor: Ashutosh Pandey
Editor’s note: First published February 2, 2026; updated February 3 to reflect a partial recovery in prices.