Sharp Correction Hits Gold and Silver After Record Highs… Is the Downturn Over or Just Beginning?

Gold and silver prices have fallen sharply after reaching new record highs, raising broad questions in the markets about whether the correction has run its course or if further downside remains likely.

In recent weeks, both precious metals moved at an accelerated pace. After a strong rally at the end of January that pushed prices to historic peaks, they came under clear selling pressure, leading to deep corrections that unsettled market participants.

This week brought a degree of relative calm. Gold rebounded from its lows and even traded briefly above the US$5,000-per-ounce level. Silver, known for its greater volatility compared to gold on both the upside and downside, experienced sharper swings but appeared to find support near US$70 per ounce.

Why Did Gold Decline?

Joseph Cavatoni, market strategist at the World Gold Council, indicated that speculative activity played a central role in the recent pullback. He explained that a significant portion of the rally had been driven by speculative inflows, and as those investors began taking profits, prices underwent a natural correction.

In his view, the recent decline does not reflect any fundamental weakness in the gold market, but rather a repositioning following a strong upward move.

Silver: Correction and Controversy

In the silver market, additional explanations have emerged. Beyond overbought conditions, analyst Gary Savage suggested that some banks may have taken advantage of excessive bullish momentum to execute coordinated selling pressure. This reportedly led to a sharp drop approaching 30% in a short period, enabling them to cover short positions that were at risk of physical delivery at significantly higher price levels.

The situation became more complex following reports that Chinese billionaire trader Bian Ximing established the largest net short position in silver futures on the Shanghai Futures Exchange, valued at approximately US$300 million.

According to an analysis of trading data published by Bloomberg, he began ramping up his bearish bets in the final week of January, after initially shifting from long to short positions in November. The trader is also known for his activity in gold and copper markets.

The Impact of Monetary Policy

On another front, some analysts noted that the nomination of Kevin Warsh to lead the Federal Reserve may have weighed on gold and silver prices.

President Donald Trump announced his selection on January 30, prompting markets to revisit Warsh’s reputation as a policy hawk, particularly regarding interest rates. This raised questions about whether he would align with Trump’s calls for lower rates, amid ongoing tensions with current Federal Reserve Chair Jerome Powell.

However, concerns eased in subsequent days after Trump stated that Warsh would not have been chosen if he had intended to raise interest rates.

Have We Reached a Peak?

Despite the severity of the recent declines, most experts interviewed do not believe gold or silver have reached the top of their current bull cycle.

Adrian Day of Adrian Day Asset Management recalled that previous bull markets featured deep mid-cycle corrections before resuming their upward trajectory.

He pointed to gold’s nearly 50% drop between 1974 and 1975, as well as a roughly 30% correction in 2006 during the prior bull market, before the metal went on to post substantial gains.

In his assessment, a correction is not merely possible but almost inevitable within any extended bull market. However, that does not necessarily signal that a final top has been reached.

Recent volatility reflects a confluence of factors: speculative profit-taking, large short positions in silver, sizable individual bets in Asian markets, and reactions to developments in US monetary policy.

Nevertheless, the prevailing view among many specialists is that the fundamental drivers supporting gold and silver remain largely intact.

Ultimately, personal conviction and a clear understanding of why assets are held in a portfolio remain crucial when navigating periods of market turbulence — whether the current phase proves to be a temporary correction within a broader uptrend or the beginning of a more complex chapter in the precious metals cycle.