Momentum, not fundamentals, drove the gold and silver reversal
2 FEB, 2026
By Garrett Melson, Portfolio Strategist, Natixis IM Solutions
Catalysts are not the same as drivers. The catalyst behind the surprising trend reversal in silver, gold, and precious metals overall appears, without doubt, to have been President Trump’s appointment of Kevin Warsh as the next Chair of the Federal Reserve.
However, the sell-off was not driven by fears of a liquidity withdrawal should Warsh reduce the Fed’s balance sheet, nor by a stronger dollar following the announcement. Investors are instead pricing in the risk that short-term rate cuts may ultimately require further hikes, a dynamic that helped fuel the impressive declines.
Over recent weeks, gold – and especially silver – entered parabolic territory. Gold climbed to four standard deviations above its five-year average, while silver nearly reached an extraordinary eight-standard-deviation move.
These extreme price movements had nothing to do with artificial intelligence, defense spending, geopolitical tensions, or monetary policy. They were certainly not the result of the so-called “devaluation trade.” Those explanations were merely entertaining narratives attached to what was, in reality, an extreme momentum-driven trade.
When prices surge in a relatively illiquid market with broad investor access, crowding becomes inevitable. And crowded trades of this magnitude leave assets highly vulnerable to even minor disruptions.
The catalyst, in the end, does not matter. The sharp declines in gold and silver are not the result of a fundamental reassessment of the economic outlook, the implications of the Fed chair appointment, confidence in the dollar, or any other appealing storyline.
They are simply the aftermath of a trade driven technically by massive momentum.
