From a trading logic perspective, the market’s earlier optimism about a more dovish US policy path is now being directly offset by a repricing of expectations around the Federal Reserve’s leadership.

Former Fed Governor Kevin Warsh, a well-known hawk, has been nominated by Trump to succeed Powell when his term ends in May. This has triggered a reassessment of the Fed’s future policy stance and became the key catalyst behind the market’s turn.

The “strong dollar” narrative has re-emerged, and the very expectations that had previously underpinned the powerful one-way rally in gold and silver are now being challenged.

From this angle, the sharp pullback in gold is better seen as a classic technical correction following an extreme parabolic move, rather than a fundamental break in its longer-term bullish story.

Warsh’s nomination is one of the core drivers behind the stronger dollar. As a firm supporter of tighter monetary policy, he has fuelled expectations that the Fed may lean more hawkish going forward. Previously, the market had largely priced in that Philip Jefferson / Adriana Kugler / “Reed”-style dovish leadership would favour easier policy and greater tolerance for inflation. The shift in perceived successor has created a major expectations gap.

At the same time, the US government “shutdown” has, in practice, gone from a real shutdown to a largely nominal one. Although the government is once again technically in shutdown, key agencies have secured funding, meaning there has been no real operational halt.

In addition, Trump’s signalling that a potential agreement with Iran may be on the table has sharply eased geopolitical risk sentiment. Crude oil futures fell around 5% on Monday, and the safe-haven bid for gold weakened in tandem. Taken together, these factors punctured what had become a crowded trade and burst a local bubble in the precious metals rally.

On the flows side, CME Group raised margin requirements for gold and silver futures. Gold margins were increased from 6% to 8%, and silver margins from 11% to 15%. Coupled with the large pool of profitable long positions accumulated during the prior one-way surge, this margin hike prompted some investors to lock in profits. The rush to take money off the table triggered concentrated long liquidation and accelerated the price decline.

Despite the sharp near-term correction, price action in the precious metals complex continues to show notable resilience. The long-term uptrend has not been structurally broken by this technical reset.

On the geopolitical front, while tensions in the Middle East have eased somewhat in the short term, global uncertainty remains elevated. Diplomatic tensions between the US and Europe over the status of Greenland have disrupted the traditional stability within the Western alliance. At the same time, the renewed threat of tariff and sanctions regimes is raising the risk of further fragmentation in the global economy.

These potential flashpoints are likely to continue injecting a risk premium into gold prices over the long term, reinforcing its role as the ultimate safe-haven asset.

On the central-bank buying front, the global de-dollarisation trend is now in full swing and has become the most disruptive structural support for the gold market. Central bank demand for gold tends to be long-term and stable, with very little panic selling. Official sector buying has effectively built a solid price floor for gold and now serves as the ballast of the entire market.

Market Commentary:

From a short-term trading perspective, gold is still likely to trade within an elevated range, but with significantly higher volatility.The core reason is that markets are in a wait-and-see mode, looking for clearer signals on Warsh’s policy stance.The policy tone set by the incoming Fed leadership will be a key guide for short-term price action and is likely to drive the next directional move in gold.