The surge in the silver price, which had increased by more than 20 per cent in a week and 90 per cent since the end of October, ended abruptly on Friday night. The spot price plummeted as much as 31 per cent during a torrid session, while gold also fell, dropping 8.5 per cent on the day. These were the biggest falls since 1980. Moves in gold and silver in the past week have been parabolic, emotional and highly speculative, so a pullback was overdue.
The spark for this pullback was US President Donald Trump’s selection of former Fed official and economist Kevin Warsh as the next chairman of the Federal Reserve. While Trump has attacked outgoing Fed chair Jerome Powell for failing to lower interest rates, markets decided to focus on Warsh’s record as a policy hawk. Investors reasoned Warsh wouldn’t deliver the big rate cuts that other Fed chair candidates may have argued for. The US dollar, which had fallen sharply in recent weeks, jumped on Friday.
The rise in the dollar sparked a wobble in precious metals markets, which turned into a landslide, particularly in the already overheated silver market. US equity markets slipped a little, and the US 10-year bond yield moved a touch higher. The market seems to think Warsh’s recent dovish conversion is a false lead, and Warsh will resume his old inflation-fighting ways when he’s actually in the big chair.
