More Tarnish for Gold and Silver

Narratives have a way of shifting quickly in the market.

Heading into last week’s Federal Reserve meeting, new Chair Kevin Warsh was viewed by many as a dove who would be the ultimate toady for President Trump. 24 hours later, all that talk was out the window. Overnight, Warsh picked up a reputation for being a reincarnation of Paul Volcker, and now the talk is two rate hikes before the midterms. Would Warsh really steer the Fed in a direction that looks openly political, potentially derailing the back half of the presidency of the man who appointed him?

Sentiment has a way of shifting back and forth between extremes, and just as Warsh was never likely to be the President’s toady, he’s unlikely to steer the Fed into two rate hikes between now and November, especially with oil prices cratering in the last several weeks.

While the shift hasn’t been as quick, the narrative around precious metals has reversed sharply. Earlier this year, investors and traders couldn’t get enough gold and silver to hedge against inflation and a “sell America” trade. Gold and silver both surged to start the year following already strong runs in 2025, but the momentum to start 2026 quickly stalled.

At their January highs, gold and silver were up 29% and 72% YTD, respectively. Today, the “sell America” trade has turned to “buy America,” causing the dollar to strengthen and precious metals to lose their luster. Warsh’s perceived hawkishness at last week’s Fed meeting only added to the recent weakness, and both metals have given up their earlier YTD gains and more with gold now down 6.5% YTD and silver down more than twice as much, with a drop of 15.7%.

For gold, prices briefly dipped below $4,000 an ounce this morning, and even after rebounding intraday, it is still on pace to close at its lowest level since November.

Silver’s decline has been a higher magnitude but has essentially followed the same pattern as prices are at their lowest level since late last year.

From its record high earlier in the year, gold prices are currently in a drawdown of 24%, while silver is down twice as much.

While gold’s decline has been steep, it’s still much less deep than the 35.9% average drawdown it has traded in since 1975. In fact, 25% drawdowns in gold have not been uncommon over time. Since 1975, gold has traded at a discount of at least 25% relative to its prior all-time high on nearly two-thirds (65%) of all trading days.

Silver tends to be ‘on sale’ even more frequently. Since 1975, its average drawdown has been just under 65%, and on 88% of all trading days, it has been down at least 25% from its prior all-time high.

It’s hard to look at the recent weakness in gold and silver and remember how different sentiment was towards the metals less than six months ago, when places like Costco couldn’t keep gold bars in stock, and central banks around the world were supposedly ditching dollars for gold, but sentiment has a way of changing quickly.

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