A sharp pullback in gold and silver prices on Friday offered a glimpse of how sensitive safe-haven assets remain to shifts in expectations around US monetary policy.
Markets moved swiftly as President Donald Trump announced former Fed governor Kevin Warsh as his nominee to replace Federal Reserve Chair Jerome Powell.
Gold futures slid more than 5% intraday, briefly falling below the psychologically important $5,000-an-ounce level, while silver dropped through $100 an ounce after posting extraordinary gains earlier in the week.
The moves underscore how a potentially more hawkish Federal Reserve leadership could reshape the outlook for assets that have benefited from loose financial conditions and a weakening dollar.
Dollar strength and rate expectations
One immediate channel through which a hawkish Fed chair could affect safe haven assets is the US dollar.
Precious metals are priced in dollars and tend to move inversely to the greenback.
On Friday, the US Dollar Index rose, contributing to pressure on gold and silver.
“If Warsh were to be nominated it’s good news for the dollar, which can price out some risks of a more dovish pick,” ING FX strategist Francesco Pesole said in a Barron’s report before Trump’s announcement, adding that the choice “may calm fears about the loss of Fed independence.”
A firmer dollar challenges the narrative that has powered gold’s surge, often described by analysts as a “dollar debasement” trade.
Richard Hunter, head of markets at Interactive Investor, noted in a MarketWatch report that “the move away from the dollar ‘debasement’ trade, which was previously showing signs of becoming entrenched, was something of a surprise to investors who have been actively seeking haven alternatives.”
Repricing the gold and silver rally
Gold has climbed 17% since the start of January, while silver has rallied about 40%, driven by demand for protection against geopolitical risk and financial instability.
Those gains pushed prices into what many traders consider overbought territory, leaving markets vulnerable to sharp corrections on any shift in policy expectations.
“Warsh has been a monetary hawk his entire life,” said Michael Brown, a senior research strategist at Pepperstone.
Although he noted that Warsh has more recently supported the need for lower interest rates, the perception of a tougher stance on inflation and balance sheet policy has been enough to trigger profit-taking.
Tim Waterer, chief trade analyst at KCM, said in a Reuters report, “A potentially less dovish Fed chairman pick, a rebound in the dollar, and gold giving way to overbought conditions have contributed to the decline in the price of the precious metal.”
Volatility as the new normal for havens
Despite the sell-off, analysts caution against reading the move as the end of the safe-haven trade.
Instead, it highlights how sensitive prices are after a “breathless rally,” as Brown described it.
Key technical levels are now in focus.
“Price action over the next few days will be key — naturally, $5,000/oz in gold, and $100/oz in silver stand as key ‘lines in the sand’ while, bluntly, the two moving sideways and becoming rather boring for a few days would probably be the most constructive signal that the market could offer right now,” Brown said.
A more hawkish Fed chair would likely support higher yields and a stronger dollar, tightening global liquidity and weighing on commodities and other havens.
At the same time, persistent geopolitical risks and lingering concerns about growth mean investor demand for protection has not disappeared.
The upshot is that safe-haven assets may remain volatile, oscillating between powerful structural drivers and rapid repricing as expectations around US monetary policy evolve.
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