What are the root causes, and how much is it going to fall?
After touching historic highs in late January, gold and silver prices have seen a sharp, sudden correction,promptingconcerns among investors and sparking debate over whether the long-running bullion rally has finally run out of steam.
Market participants describe the sell-off as a classic liquidity flush following an unsustainable parabolic rise, rather than a collapse driven by deteriorating fundamentals.
Gold, which surged to nearly $5,600 per ounce, and silver, which briefly crossed $120 per ounce, reversed violently in the final days of January and early February, wiping out nearly $5 trillion in notional market value across global commodities in under 48 hours[1].
What triggered the bullion sell-off?
A hawkish signal from Washington
The immediate macro trigger was US President Donald Trump’s decision to nominate Kevin Warsh as the next Federal Reserve chair. Warsh is widely regarded as a monetary hawk and a critic of prolonged easy-money policies.
Markets swiftly repriced expectations of aggressive US rate cuts, strengthening the US dollar and exerting pressure on non-yielding assets such as gold and silver. Historically, bullion prices move inversely to real interest rate expectations and dollar strength [2],[3].
Margin hikes turn correction into a rout
The sell-off intensified after the CME Group raised margin requirements to contain extreme volatility. Gold margins were increased from 6% to 8%, while silver margins jumped sharply from 11% to 15%[4].
For leveraged traders, the decision forced immediate liquidation or the injection of fresh capital, triggering cascading sell orders and accelerating the decline.
By late January, technical indicators were flashing warning signs. Gold’s Relative Strength Index (RSI) surged above 90—levels rarely sustained for long in any asset class.
With speculative positioning stretched and momentum-driven inflows dominating, the rally had become increasingly fragile[5].
How far could prices fall?
Analysts monitoring positioning data and physical demand believe much of the forced liquidation has already played out.
• Gold has corrected from around $5,595 to lows near $4,400 per ounce. Market strategists expect consolidation in the $4,300–$4,500 band before any renewed upside later in 2026[6].
• Silver has plunged from $122 to the $73–$79 range. Strong industrial demand linked to solar power, electric vehicles, and electronics is expected to offer support near $70 per ounce[7].
What this means for Indian investors
For Indian investors, the impact of the global correction has been partially cushioned by rupee depreciation, which typically offsets declines in international bullion prices. Historically, periods of global risk aversion strengthen the US dollar, pressuring emerging-market currencies such as the rupee[8].
India’s gold demand, however, remains structurally driven by jewellery consumption, household savings behaviour, and cultural factors. Past corrections have often revived physical buying rather than trigger panic selling, particularly ahead of wedding and festive seasons[9].
Investors holding Sovereign Gold Bonds (SGBs) remain relatively insulated due to the fixed interest component embedded in the instrument. In contrast, holders of gold and silver ETFs should expect continued short-term volatility, given their close linkage to global spot prices[10].
Silver’s correction also comes amid India’s expanding footprint in solar manufacturing, electronics, and electric vehicles, reinforcing long-term industrial demand despite near-term price fluctuations [11].
Correction, not collapse
Despite the severity of the move, most analysts view the sell-off as a reset after excess, not a breakdown of bullion’s strategic relevance.
With global debt elevated, geopolitical risks unresolved, and central banks continuing to accumulate gold reserves, precious metals remain an important hedge—albeit one currently adjusting to tighter liquidity and shifting macro expectations.
References:
[1] Bloomberg Commodities Market Data – bloomberg.com
[2] Federal Reserve policy expectations and rate outlook – federalreserve.gov
[3] World Gold Council – Gold and interest rates, Gold Demand Trends: Q4 and Full Year 2025 – Jan 29, 2026, gold.org
[4] CME Group – Margin requirement updates
[5] Investopedia – Relative Strength Index (RSI) – Dec 29, 2025, investopedia.com
[6] Reuters – Gold price outlook and analyst commentary – reuters.com
[7] World Silver Survey 2025 – Apr 16, 2025, silverinstitute
[8] Reserve Bank of India – Exchange rate and capital flows – rbi.org
[9] World Gold Council – India gold demand trends – gold.org
[10] SEBI – Commodity ETFs and tracking risks – sebi.gov
[11] Ministry of New and Renewable Energy – Solar capacity data – mnre.gov
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