In the blink of an eye, on Friday 30-1-2026, gold prices collapsed by 10.7% and silver prices by 17%, contrary to what all analysts and monitors had believed. There are three main reasons for these developments:
The first reason. The US President's declaration of nominating Kevin Warsh for the position of Chairman of the Federal Reserve, known for his belief in strict monetary policy leading to an increase in interest rates or at least not reducing them currently, and his opposition to quantitative easing and currency printing as he sees that it causes distortions in financial markets and feeds inflation. On several occasions, he has called for reducing the Fed's balance sheet by reselling the $7 trillion in treasury bonds accumulated during the years of quantitative easing and wants to return to the era where the Fed's balance in the budget was less than $1 trillion in bonds. He believes that quantitative easing raises asset prices and benefits the wealthy class and giant corporations, resulting in decreased liquidity in financial markets, especially among banks, higher US dollar value, and lower gold value.
He also opposes the Fed's intervention in financial markets to save banks because he believes that discipline from the markets is sufficient to address financial crises. All these beliefs he holds increase the value of the dollar and decrease the value of gold, and they are well known to financial markets and traders, hence the sharp reaction. Reports from the United States suggest that the US President may not have expected such a market reaction as he wishes any incoming Fed Chair to lower interest rates and believes that a weaker dollar serves the interests of the United States.
The second reason. The collapse of stock prices, with Microsoft's stock falling 10% on that day, it is known that a large part of stock investments are made through margin buying, where banks provide loans to investors (who expect stock prices to rise) secured by stocks, and if prices fall, risks on banks increase thus they start demanding investors replenish their cash balances, which is called a Margin Call forcing investors to sell gold to obtain liquidity as it is the fastest way to get cash.
The third reason. It is known that gold can be bought directly, meaning the investor gets it tangibly (ounces or tons in the case of central banks) or by purchasing what is called gold papers, in which case, they don't get the gold but own a contract that specifies the agreed amount of gold and other terms (and by the way, most of these contracts are settled in cash and not in gold). Most of these purchases are made through financial leverage by borrowing up to 20 times the amount allocated for the purchase, for example, if an investor has a million dollars, he can borrow 19 million dollars to buy gold. These practices are common in financial markets, but recently there has been a tightening in leverage facilities by reducing them, for example, to 10 or 5 times, which entrapped the investors. Going back to the previous example, after the investor bought what was worth 20 million dollars, they are now asked to reduce their loan to 10 million and to obtain quick liquidity, the investor had to sell gold.
All these developments led to that collapse, and the question now is: What is the fate of gold? Whether it is rising or falling? It is a question that no one can answer accurately in this world. It is important to remember that the factors that initially led to the rise in gold are still present and have become a fixed and ongoing reality, the most important of which are the known geopolitical developments and central bank purchases, notably China, in huge quantities, in addition to the dollar's decline by more than 10% on an annual basis. From this perspective, I see that gold is likely to rise, but at a less intense rate.
