What the hell happened to gold and silver prices – and what happens next?

I wrote early last week, it was probably time to start questioning whether we’re about to see the silver price falter, given the leading iShares SLV ETF overtook NVIDIA and the S&P500 SPY index fund when it came to turnover momentum.

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And while the finance commentariat aren’t exactly unified on why, exactly, we’ve seen exactly that happen over the weekend and heading into Week 6: Silver prices staged their biggest ever drop on record; gold was sold off the sharpest it’s seen a decline since the 1920s. Basically, take a look at the chart below.

That’s for silver. Here’s what gold looks like over one-month expressed as a line chart.

Both those charts are accurate as of lunchtime Monday, February 2; it doesn’t take a long trading career to see a pretty firm correlation.

Silver markets, in particular, have been running dangerously hot. I’m going to assume the ‘haven metals’ investment thesis hasn’t permanently bifurcated into a story of gold and silver yet, so I’ll treat silver as a speculative asset in trying to explain the sell-off. And there, I think, it’s just profit-taking and nerves.

The leveraged long-silver futures ETF AGQ, put out by ProShares, was up +158% YTD last Thursday (U.S.) time; but after dropping -60% Friday, basically all January gains were wiped out, bringing it back to just +3% gains. The iShares silver ETF outperforming SLV is one thing, but then look at the pain in leveraged products.

It wasn’t just silver ETFs. State Street’s gold ETF, GLD, also clocked an all-time-high daily volume turnover through Week 5, netting US$40B in trades on Friday. If ETFs exposed to silver and metals are evidence of frothy retail demand, then we’re definitely seeing something that would give some fears that there’s just been a rugpull.

So what are the reasons being attributed to the decline? After all, it’s now looking less certain that there’s a commodity supercycle after all. The truth is that remains to be seen, and this could just be a step down before a further rise, as is normal for markets.

The U.S. Government’s announcement of its next Fed pick, Kevin Warsh, has been linked by many to the sell-off, and it ultimately comes down to this: Warsh is perceived as a sensible operator who is believed to be unlikely to shake up the board too much when it comes to interest rates in the U.S. and general acumen.

That may well be why gold prices fell; still, the U.S. dollar has retained its wider losses in recent weeks; we know that the new Federal Reserve pick will be under immense pressure to introduce a rate cut regardless of CPI and the labour market; and we also saw global gold demand hit record highs in CY25.

Central Banks are looking to continue snapping up gold, and as long as gold keeps climbing, there’s a decent thesis to substantiate a higher silver price.

In my view, we’ve only seen a momentary cooling off in the metals rally as the market takes profits from one hectic first-month-of-the-year, and perhaps the question now being asked is: what’s next? Somehow, though, this Market Link journalist doesn’t think we’ve quite heard the last of silver or gold just yet.

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