Why Are Gold and Silver Plunging?

Key Takeaways

• The crash was not a fundamental reset but a positioning shock as investors’ precious-metal bets were liquidated.
• Volatility is likely to persist: While long-term buyers may step in, near-term price swings remain elevated as leverage is flushed out.
• Gold’s structural bull case remains intact, while silver is more vulnerable.

Both the surprisingly hawkish pick for the next Fed governor and the mechanics of a heated market triggered the ongoing, historic correction in gold and silver prices.

One of the most violent selloffs in modern precious-metals history began on Friday, Jan. 30. Gold plunged 9%, falling from USD 5,390 an ounce to USD 4,895, its steepest single-day decline since the early 1980s. Silver suffered an even more dramatic collapse, plunging as much as 35% midday for its largest one-day drop on record. It closed the session down 26% at USD 85 an ounce, down from an opening price of USD 115.

The scale of the move was extraordinary: Gold and silver erased roughly USD 7 trillion in combined market value in a single session, as a perfect storm of positioning, leverage, and liquidity constraints triggered mass liquidation.

The sell-off came after an exceptional rally. Prior to the selloff, silver’s spot price rose to USD 116.61 on Jan. 28, 2026 from USD 30.82 one year prior for a gain of about 278%. Over the same period, gold climbed to USD 5,400.88 from USD 2,757.71, a gain of roughly 96%.

In January alone, gold rose 29% and silver surged 68%, leaving both markets heavily overbought, crowded with speculative positions, and supported by increasingly frothy sentiment.

What Actually Broke the Market?

According to Nitesh Shah, head of commodities at WisdomTree, Jan. 30 is likely to go down as one of the most volatile days ever for both gold and silver. “These are price swings you would normally expect over the course of a year, not within a single trading session.”

Analysts point to a sudden shift in the political backdrop as a catalyst. The designation of Kevin Warsh as the next Federal Reserve Chairman reduced perceived political risk, removing momentum from precious metals and triggering sharp reversals in positioning.

But the deeper driver was mechanical. “This was a liquidity event,” says Luigi de Bellis, head of research at Equita. “With volatility spiking, sales were amplified by risk limits, margin calls, and volatility-control strategies. Silver, being thinner and more speculative, magnified the stress as positions had become especially crowded.”

Kerstin Hottner, head of commodities at Vontobel, describes the move as a classic deleveraging shock: “Extended speculative positions were forced out of a crowded momentum trade as stop-losses and margin calls cascaded through the market.”

Crucially, the crash was not driven by a sudden change in fundamentals. “Inflation data did not suddenly shift. Policy expectations did not reverse overnight,” says Naeem Aslam, CIO at Zaye Capital Markets. “What failed was the assumption that assets widely seen as defensive would remain liquid under stress.”

The sell-off did not call into question gold and silver’s role as safe havens, but it did show that even defensive assets can turn volatile when investors rush into the same trade simultaneously.

Structural Support Remains for Gold and Silver

Despite the violence of the move, most strategists do not view this as the end of the precious metals’ cycle.

Shah argues that gold and silver are undergoing a structural regime shift: “The buyer base for gold is broadening to include Chinese insurers, Indian pension funds, and fast-growing digital and tokenized gold products. These forces are pushing prices into territory traditional valuation models struggle to capture.”

The scale of the correction – roughly USD 1,200 peak-to-trough so far – is reminiscent of prior sharp drawdowns that ultimately marked entry points for institutional buyers. Claudio Wewel, FX strategist at J. Safra Sarasin, notes that gold would likely need a further major macro shock to break decisively below the psychologically important USD 4,000 level. “We are close to the bottom, but volatility should remain elevated in the near term.”

Invesco strategist Luca Simoncelli agrees: “The fundamental and strategic drivers behind gold and silver remain intact. Allocation to precious metals is increasingly strategic, not tactical.”

What Does it all Mean for the Long Term?

Shah believes the violent drawdown will deter short-term speculators but may open the door forlonger-horizon investors: “The market may have flushed out a significant portion of speculative froth, potentially creating space for long-term strategic buyers to re-allocate.”

Vontobel’s Hottner is still constructive on gold, pointing to what he sees as durable structural tailwinds. “Central bank buying, ETF inflows, safe-haven demand, and currency debasement remain powerful structural drivers. We maintain an overweight in gold and view the correction as a potential entry point.”

That view is echoed by J. Safra Sarasin’s Wewel, who adds that gold’s medium-term case remains supported by geopolitics and institutional distrust in fiat currencies. “Elevated geopolitical uncertainty and pressure on the rule of law in the US are likely to continue weighing on confidence in the dollar. We also expect gold to benefit ahead of the US midterm elections. Hence, we are inclined to see the current correction as an entry opportunity.”

Silver, however, tells a different story: Industrial demand remains weak, particularly as solar manufacturers continue to reduce silver usage. “With speculative positioning still dominating silver price action, we stay absent,” Hottner says. “The price has disconnected from fundamentals.”