Gold extended its losses following its biggest drop in more than a decade last Friday, while silver has erased its gains since the beginning of the year, as the record-breaking rally in precious metals unwinds at an accelerating pace.
Spot gold fell 4.5% to $4,644 an ounce at the time of writing, placing prices nearly 20% below their all-time high reached in the previous session but one.
Heavy Positioning Triggers Exit Wave
Bloomberg quoted Robert Gottlieb, a former precious metals trader at JPMorgan and now an independent market commentator, as saying:
“The bottom line is that the trade became extremely crowded,”
adding that reluctance to take on additional risk is now constraining market liquidity.
Meanwhile, Jia Cheng, Head of Trading at Shanghai Suchuang Jiuying Investment Management, said that most profit-taking buyers were “ready to exit at any moment,” noting that the sharp sell-off was largely driven by gold-backed exchange-traded funds (ETFs) as well as leveraged derivatives positions.
He added that the extent to which Chinese investors step in to buy on dips will be a key factor in determining the market’s direction going forward.
For his part, Ziji Wu, analyst at Jinrui Futures, said:
“Rising volatility and the approaching Lunar New Year are prompting traders to reduce positions and cut risk,”
adding that falling prices—especially during the peak buying season—are likely to support consumer demand in China.
Strong Dollar Pressures Gold
The main trigger behind Friday’s aggressive selling was news that U.S. President Donald Trump nominated Kevin Warsh as the next Chair of the Federal Reserve, a move that strengthened the U.S. dollar and undermined confidence among investors who had been betting on Trump tolerating a weaker currency.
Traders view Warsh as one of the most inflation-fighting candidates among the finalists, fueling expectations of a more hawkish monetary policy, which typically supports the dollar and weighs on dollar-denominated precious metals.
Supportive Fundamentals Remain
Despite the sell-off, analysts stress that gold’s underlying fundamentals remain intact.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said:
“This is a mass exit, and fundamental support will only return once selling pressure subsides and investors are able to look ahead again.”
In a research note, Michael Hsueh, analyst at Deutsche Bank, wrote:
“The fundamental drivers of gold prices remain positive… conditions do not appear conducive to a sustained reversal in gold prices,”
maintaining his forecast of $6,000 per ounce.
On Sunday, JPMorgan reiterated in a research note that growing demand from central banks and investors could push gold prices to $6,300 per ounce by the end of 2026, despite the current pullback—underscoring gold’s continued role as a key safe-haven asset amid heightened global uncertainty.
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