Gold and silver prices experienced their worst losses in decades on Friday following former President Donald Trump’s nomination of Kevin Warsh to lead the Federal Reserve. The brutal sell-off marks a dramatic reversal for precious metals that had climbed to record highs over the past year, with gold dropping 12 percent to around $4,786 per ounce and silver plunging as much as 32 percent to approximately $80 per ounce.
According to market data, the single-day decline represented gold’s worst performance in more than a decade, while silver posted its steepest loss since 1980. Warsh, a former Fed Governor, is expected to replace Jerome Powell later this year pending Senate confirmation.
Warsh Nomination Reshapes Gold Price Outlook
The sharp downturn in precious metals appears linked to investor reassessment of monetary policy expectations under Warsh’s potential leadership. Markets had anticipated Trump might select a more dovish Fed chair who would aggressively lower interest rates as part of his affordability agenda. However, Warsh is widely viewed as more hawkish on inflation and likely to preserve the Federal Reserve’s traditional independence.
Art Hogan, chief market strategist at B. Riley Wealth Management, told Business Insider that investors were seeking a catalyst to take profits after the parabolic rise in metals over the previous 12 months. Additionally, he noted that the announcement provided the technical trigger many traders had been anticipating for a pullback.
Debasement Trade Faces Reversal
The so-called debasement trade, which had fueled much of the rally in gold and other hard assets, appeared to unwind following the nomination announcement. This investment strategy involved purchasing precious metals and other tangible assets amid concerns about US dollar weakness, potential Fed politicization, and rising inflation pressures. Meanwhile, the US Dollar Index surged nearly 1 percent on Friday afternoon, reversing a 11 percent decline over the past year.
José Torres, a senior economist at Interactive Brokers, described the metal sell-off as a knee-jerk reaction to the Fed chair nomination. He suggested considerable confusion exists in markets regarding what kind of monetary policy Warsh would actually pursue, noting the contradiction between Trump’s stated preference for a dovish approach and Warsh’s historical stance as an inflation hawk.
Market-Wide Impact Beyond Precious Metals
US equity markets also retreated on the news, with the tech-heavy Nasdaq Composite dropping more than 1 percent. The S&P 500 pulled back further from the psychologically significant 7,000 level it had surpassed for the first time earlier in the week. In contrast, the strengthening dollar indicated investors were repositioning their portfolios based on revised expectations for Fed policy.
David Rosenberg, founder of Rosenberg Research, wrote in a client note that the market reaction pointed toward less dovish expectations and more orthodox monetary policy outlook. Furthermore, he indicated that fears about Fed independence appeared to be easing at the margin, contributing to the unwinding of debasement-related positions.
Uncertainty Remains Over Gold and Silver Direction
Torres emphasized that the recent meteoric rise in precious metals had been fueled significantly by speculation and hype, making a substantial correction more likely. However, analysts cautioned that Friday’s dramatic moves may not definitively signal the end of the precious metals rally. Hogan acknowledged it remained too early to determine whether the debasement trade was truly finished, though the market reaction suggested some investors were indeed reversing course.
Market participants will likely monitor Warsh’s Senate confirmation hearings closely for additional clarity on his monetary policy stance and approach to Fed independence. The extent of further declines in gold and silver prices will depend on how investors ultimately interpret the implications of new Fed leadership for inflation, interest rates, and dollar strength.
