Gold Falls 23% and Silver 44% as Fed Hawk Bets Rise

Gold and silver have slid sharply from January highs as investors boosted expectations for a tighter Federal Reserve policy. By June 5, gold was trading near $4,328 an ounce, about 23% below its late-January peak of $5,608. Silver was near $67.72, roughly 44% below its January high above $121. The two metals have lost about $1 trillion in combined market value since those peaks.

Prices fell after Kevin Warsh was sworn in as Federal Reserve chair on May 22 and after the May jobs report showed nonfarm payrolls rose by 172,000, above an 85,000 consensus. Those developments pushed futures markets toward a higher terminal fed funds rate and increased the probability of another policy tightening later in the year.

Higher expected real yields and a firmer U.S. dollar raised the opportunity cost of holding non-yielding bullion, reducing investor demand. Spot data on June 5 showed gold down about 3.3% on the day and silver off more than 8% on the session. Platinum and palladium also weakened, with platinum trading near $1,775 and palladium near $1,207 on the same day.

The price moves contrasted with conditions that typically support precious metals. The U.S.-Iran conflict disrupted shipping through the Strait of Hormuz and pushed oil briefly above $100 a barrel. U.S. consumer inflation was 3.8% year-over-year in April. Despite those factors, market positioning adjusted to the prospect of higher rates.

Structural demand trends persisted in the background. Central banks, including purchases reported from Poland, China and Uzbekistan, remained net buyers through the first quarter, and China resumed purchases in April, adding about 19 tonnes. Physical silver markets remained tight because of demand from solar panel and electronics manufacturers. Those flows were insufficient to offset outflows from Western investors and the unwinding of leveraged speculative positions built during the January rally.

The January surge drew heavy leveraged positions: gold rose about 31% in 29 days and silver climbed roughly 68% over the same period. As the expectation of rate cuts faded, many of those leveraged bets were closed, and technical selling accelerated the decline.

Market participants highlighted leverage unwinds and stop-loss triggers as key drivers of the rapid retreat. An X account named Bull Theory wrote: “The assets the entire world buys to protect against war and inflation just did the exact opposite of what they were supposed to do.”

Traders are focused on the Federal Open Market Committee meeting on June 16-17, Warsh’s first as chair. A policy hold is widely expected, but the updated dot plot, the Fed’s economic projections and comments at the press conference will be watched for signals on the policy path. Any hawkish guidance could extend the current correction, while de-escalation in the Middle East or softer jobs data could prompt price reversals.

Several financial institutions maintain longer-term gold price targets in the $5,000 to $6,000 range, though near-term forecasts have been revised lower in light of current rate expectations.