Deutsche Bank’s report highlights a notable drop in gold prices, seeing an 8.95% decline—the largest since 2013. This volatility is linked to Kevin Warsh’s nomination as Fed Chair, which has created a more hawkish outlook and led to increased speculation in the gold market.

Recent Market Shifts

Gold and silver have both taken hits recently, dropping by 5% and 10%, respectively, amid the expected resolution of a partial US government shutdown. This shift signals a broader caution in the market. Gold experienced an 8.95% decline in just one day, contributing to a weekly drop of 1.87%. The fluctuations in precious metals are driven by speculative behaviors. The report, analyzed using an AI tool, has also undergone an editorial review. It emphasizes the insights from the FXStreet Insights Team, which gathers expert market observations to deliver thorough analysis. Gold’s sharp decline, its worst since 2013, responds directly to the expectation of a more assertive Federal Reserve. With the possibility of Kevin Warsh becoming Fed Chair, the market is rapidly adjusting to anticipated higher interest rates. This uncertainty has caused volatility to surge, making gold options premiums very costly for buyers. For those trading derivatives, this sudden shift in Fed expectations indicates ongoing challenges for gold. The CME FedWatch tool now predicts a nearly 90% chance of a significant rate hike in March, strengthening the dollar and putting pressure on non-yielding assets. Therefore, adopting bearish strategies, like purchasing puts on gold ETFs, might be wise as we prepare for potential further declines.

Speculative Components and Volatility

It’s crucial to note that the recent rise in gold was significantly driven by speculation. Reviewing the Commitment of Traders data from January 2026, we observe that managed money net-long positions were at their highest in over two years, suggesting an overcrowded trade. This sell-off is clearing out weak investors, which may keep prices trending lower in the near term. The rise in implied volatility offers a potential opportunity. The Cboe Gold Volatility Index (GVZ) recently hit 35, a high not seen since the banking turmoil of 2024. For those who feel the peak of the panic is over, selling options to take advantage of these high premiums could be a solid strategy in the coming weeks. This scenario has happened before, notably during the ‘taper tantrum’ of 2013. Just a hint of the Fed tightening policies led to months of decline in precious metals as speculative positions were unwound. This historical context suggests that we might be entering a new trend for gold rather than experiencing a temporary setback. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now