What can break the gold rally?

Gold went from $5,600 to sub-$4,500 and back to $4,900 in less than a week. Meanwhile, silver saw its worst crash since 1980.

But if you listen to the banks, the bull market is alive and well. J.P. Morgan raised targets and UBS reiterated its target at $6,200, viewing the crash as a necessary cleanup.

So which is it: the beginning of the end, or just the end of the beginning?

In this Impactfull Weekly, we trace the path to last week’s $5,600/oz high, and the resulting crash. Much has changed since our last update on gold, when it first crossed the historic $4,000 threshold. 

We break down how these driving forces have evolved and revisit the critical risks that threaten to kill the bull market for good.

Two years ago, in January 2024 gold traded just above the $2000/oz mark and just last weekend it reached a $5,600/oz price tag, giving us nearly a 150% gain in two years. 

The last time this happened, the world was reaching a chaotic tipping point in 1979 with the Soviet invasion of Afghanistan, the Iranian hostage crisis, and the infamous petrol shock. It took the then Fed chief Volcker to hike interest rates to 20%, triggering a recession to bring inflation down.

History doesn’t repeat itself but it sure rhymes.

Trigger 1: Warsh nomination

The first domino fell on January 30th when President Trump nominated Kevin Warsh to succeed Jerome Powell as Federal Reserve Chair. The markets were already on edge before the announcement.

Nasdaq had slipped 2% while gold and silver were nursing losses of 10% and 18% respectively. Trump’s tweet turned a nervous anticipatory correction into a full-blown rout. Immediately following the news, gold dropped another 10% and silver a further 25% over the weekend.

Investors reacted this violently because Warsh represents the complete opposite of the current monetary regime on paper. He is not a dove. 

He has historically attacked the Fed’s bond-buying program as a “reverse Robin Hood” scheme, arguing that it inflates asset prices while doing little for ordinary workers. His past record suggests he wants to run a leaner, smaller Fed balance sheet while keeping inflation rates from running amok.

His philosophy poses a direct threat to gold and silver prices. Since they don’t provide any yield, they become less attractive as an asset when investors can earn a guaranteed return above inflation in government bonds. 

The market interpreted the Warsh nomination as a signal that the era of pouring money into metals to balance the volatility in markets was ending. As a consequence, Treasury yields spiked, the dollar rallied, and precious metals were sold off to buy these yielding assets.

However, Warsh’s position seems to have changed since.

Reports suggest Warsh is aligned with the expansionary fiscal policies of the Trump and Bessent team, a stance that seemingly contradicts his history of monetary discipline, but it doesn’t give the full picture.

In all honesty, this alignment between Warsh and Bessent shouldn’t be surprising as both of them are protégés of the legendary macro investor Stanley Druckenmiller.

This shared DNA would imply a regime of “tight money, loose growth.” 

Warsh will likely drain excess liquidity from the markets through aggressive Quantitative Tightening, a process where maturing debt is effectively incinerated from the balance sheet rather than reinvested. 

While he views AI as a deflationary force, his history suggests he will not hesitate to hike rates faster than his predecessors if inflation spikes.

This monetary discipline provides the safety net for Bessent to run the economy hot on the fiscal side. His strategy is to “outgrow the debt” by unleashing a wave of AI-led productivity growth and deregulation, effectively inflating the denominator (GDP) to fix the ratio.

Which version of Warsh will we get to see as Chair of the Fed? Only time will tell.

Trigger 2: Western leverage crashouts

The severity of the crash can’t be attributed to the Warsh news alone. It was significantly amplified by a forced liquidation event in the futures market.

To understand the mechanics of levered trades, consider that futures contracts allow traders to control $100 of gold with only $6 down as margin. When prices move against a position, the exchange demands more collateral. If the trader cannot provide it overnight, the exchange automatically sells the position at market price.

On January 30th, the CME Group, which handles the majority of gold and silver futures, raised margin requirements sharply. Gold margins increased from 6% to 8%. Silver margins jumped from 11% to 15%, representing a 36% increase in the required collateral.

This regulatory tightening forced anyone holding leveraged positions into a corner.Traders had to either cough up significantly more capital immediately or sell. Most were forced to sell. The resulting cascade erased roughly $15 trillion in notional value across precious metals in just 48 hours.

This liquidation spiral explains why silver fell harder than gold. Silver attracts more speculative positioning and its market is smaller, making it significantly more vulnerable to forced selling.

When high-frequency trading algorithms detected this margin-driven price drop, they piled on and exacerbated the downward momentum.

Also note that the CME raising margins is typically a lagging indicator. By the time they act, the damage is usually done.

Trigger 3: Fear of war

Gold thrives on fear. In early January, that fear was everywhere.

The dispute over Greenland’s sovereignty had escalated to a dangerous peak. President Trump was threatening military action and imposing tariffs on European allies. A genuine breakdown of NATO looked like a distinct possibility. 

Institutional and retail investors aggressively bid gold higher as a hedge against this geopolitical chaos.

Then the narrative shifted suddenly. 

On January 21st at Davos, Trump and NATO Secretary-General Mark Rutte announced a framework agreement. Military force was explicitly ruled out and tariffs were suspended. The immediate crisis was put on hold.

The “war premium” that had fuelled gold’s final push above $5,500 disappeared alongside the tension. Commodity trading advisors, the systematic funds that follow momentum, had been riding this geopolitical wave. 

When the story collapsed, they had no fundamental reason to maintain their positions. This selling pressure began before Warsh was even nominated.

The baseline pressure of the Ukraine war, and the tension of Chinese patrols & planned “exercises” in the South China Sea will be enough to keep gold prices high, but keep an eye out for other geopolitical flash points that could reignite this demand.

Any fresh fear will have an impact on gold prices first.

But before we look at what’s holding gold up, it’s worth asking a more fundamental question: who is actually driving this rally?

The conventional narrative says gold goes up when interest rates are down and gold goes up when geopolitical risk goes up.

Now that geopolitical tensions are normalising and Warsh, a Druckenmiller pupil, won’t let inflation run unchecked, the Western framework screams “sell gold.”

See for yourself: shares outstanding in GDX (the biggest US gold miner ETF) are hovering near a 10-year low while prices are at all time highs, meaning Western investors have constantly been selling into this rally. 

At the same time, you have Chinese and Japanese gold ETFs reaching all time highs, and retail investors buying up physical metals is at a level we haven’t seen since 2013.

Our hypothesis on this phenomenon is that gold isn’t hedging inflation.

It’s hedging excess liquidity and dedollarisation, as we discussed in our previous essay. And the excess liquidity that is being directed into gold is primarily Chinese, not American or European.

Think of it this way. Every economy with excess liquidity needs a pressure valve, an asset that absorbs the surplus savings that can’t find good returns domestically.

If we assume that Bitcoin acts as the excess liquidity “pressure valve” for the US and Japan, while gold serves that function for China, then any US monetary tightening from Warsh will primarily crash Bitcoin prices, not gold.

For gold, it’s just extra noise dressed up as signal.

This is a tectonic shift. And it means the triggers we discussed above, nearly all of which originate in Washington, may matter far less than the market assumes.

Despite the abovementioned triggers that will have real downward effects on the gold prices, the flip side of the coin is worth discovering as with global volatility reaching all time highs, there is a floor to which the price of gold can dive to.

Central banks

Despite record high prices, central banks added 863 tonnes to their reserves in 2025, with net purchases surging 6% in the fourth quarter alone. 

The National Bank of Poland led the pack for the second consecutive year, purchasing 102 tonnes to bring its holdings to nearly 30% of total reserves. The National Bank of Kazakhstan aggressively increased holdings by 57 tonnes over the year, marking its highest level of annual buying since 1993. Brazil re-entered the market after a four-year hiatus to add 43 tonnes in just three months, while Azerbaijan’s State Oil Fund (SOFAZ) accumulated 38 tonnes. 

These petrostates facing structurally lower oil revenues are pivoting to gold as a balance sheet anchor for their economies.

Even the People’s Bank of China (PBoC) continued to add to its reserves, with 27 tonnes added for the full year. China now holds almost 9% of the total global gold reserves at 2306 tonnes.

With such massive gold reserves, Beijing is quietly building the infrastructure for a gold-anchored renminbi, by launching offshore gold contracts accessible via Hong Kong with designated vaults for physical delivery to international clients and launching digital currency platforms for bilateral trade settlements. 

In addition, China’s US Treasury holdings have fallen to roughly $759 billion, down from a peak of $1.3 trillion. The direction of travel is unmistakable.

However, the most significant story lies in the gap between estimated total buying and officially reported figures. “Unreported” activity accounted for a massive 57% of the annual total.

Why is this “stealth buying” increasing? 

The likely hypothesis is that sovereign buyers are engaging in a quiet dedollarisation to avoid market panic. 

By accumulating gold through opaque channels, these nations can swap fiat reserves for hard assets without driving the price up against themselves or triggering a diplomatic standoff.

Asian investment demand

Investment in gold is back with a vengeance with China & India leading the pack. 

Annual bar and coin investment in China surpassed the all time highs of 2013 and for the first time on record, actually exceeded jewellery consumption.

In China the excess liquidity of retail investors used to be spread across three assets or pressure valves: real estate, the stock market, and gold.

But two of those three valves are now broken. Chinese real estate has been left for dead. And Xi Jinping has made it extremely clear that he will not tolerate speculation in equities, as every time the CSI 300 gets too frothy, regulators step in to cool it. 

That leaves gold as the only remaining viable store of value for mainland Chinese savers with excess capital.

The six major insurers joining the Shanghai Gold Exchange aren’t there for an easy trade. They’re there because there’s nowhere else to go.

India mimicked this aggressive accumulation strategy too, as the market witnessed two consecutive quarters of demand exceeding 90 tonnes, driving annual investment to its highest level since 2013 as well.

Most importantly for India, the demand profile is institutionalising. The Indian pensions regulator has now permitted the National Pension Systems to invest in gold, opening a massive new channel for institutional capital to flow into this yellow metal.

Low cost, long mine life senior miners

Over the past twelve months, the GDX (VanEck Gold Miners ETF) has returned 140%, nearly double gold’s 69% gain.

That’s operating leverage working exactly as it should. However, despite those gains, forward earnings multiples have compressed.

Agnico Eagle trades at 18x next year’s earnings today versus 20x in September 2024. Barrick is at 14x, down from 15x. Earnings have grown faster than stock prices.

The market is treating these as cyclical peaks that won’t last. 

For context, in the 2011 bull market, quality senior miners traded at 25-35x forward earnings. Today’s 14-18x multiples mean that the market is deeply sceptical about gold staying above $4,500.

But from our thesis, if this structural price floor holds, multiple expansion hasn’t even started. That means there’s still a 50-70% potential upside from the “catchup” alone, before gold moves another dollar.

(our ranking of 15 gold miners that will benefit most from the gold rally despite its recent crash)

To dig further into smaller companies bound to benefit from this gold volatility, create your own StockScreener like we did:

Bonus: ETFScreener

To find out more about ETFs available to index this gold volatility, make your own ETF Screener like we did:

The most underappreciated aspect of this entire correction is that it was triggered almost entirely by US-centric events: a “hawkish” Fed nominee, a CME margin hike, a NATO deal. 

But the marginal gold buyer isn’t leveraged on the CME. They’re queuing at the Shanghai Gold Exchange. 

The margin hike flushed out speculative positioning, which is exactly what a healthy bull market needs. And the war premium was always on borrowed time.

What hasn’t changed though is: central banks added 863 tonnes in 2025 with 57% of purchases going unreported. China is building gold-settlement infrastructure through Hong Kong while its Treasury holdings fall toward $759 billion. Indian pension funds just got the green light to allocate to gold for the first time. None of these flows reverse because of a Fed nomination.

The market is pricing senior miners at 14-18x forward earnings, half the multiples they commanded during the 2011 bull run. That gap tells you the consensus still treats $4,500+ gold as a cyclical peak. 

If we’re right that the floor is structural, the re-rating alone implies 50-70% upside for quality seniors before gold prices move an inch.

Until China reopens one of its pressure valves (a dead real estate market or frothy equity markets), 1.4 billion people have exactly one pressure valve left and they’re going all in.

Stay invested, cautiously.