Markets have swung violently, and the consensus outlook has clearly fractured. Last Friday, precious metals had already suffered an epic, historic selloff. The broad plunge in gold and silver shows that any market can fall into a frenzy. With positions and leverage rising, the liquidation is now spilling into other markets. In fact, deleveraging is underway.

Prices fell after Trump appointed Kevin Walsh as Fed chair. Walsh’s appointment appears to have burst the gold and silver bubble that had been inflated by hopes of a weakening U.S. dollar.

Overall, the volatility reflects gloomy investor sentiment ahead of a week packed with major events. The latest weekly gold survey shows Wall Street is divided on gold’s near-term outlook, with no clear consensus, while retail investors remain predominantly bullish.

Trump’s decision does not seem likely to cause the market to overheat — and that is clearly why precious metals were sold off. Markets may absorb expectations for a moderately faster pace of rate cuts, but an aggressive easing cycle still appears unlikely.

Walsh’s selection should help stabilize the dollar to some extent and reduce the asymmetric risk of deep dollar weakness by challenging the “devaluation trade.” At this point, it is impossible to predict direction. The gold market has begun seeing daily swings of several hundred dollars — and it is not alone; silver has been equally volatile.

If this pullback is the result of Trump naming the next Fed chair, it is expected to be temporary, because the promise of lower rates is positive for gold. Fundamentally, nothing has changed. Gold needs to release some pressure and will likely continue range-bound consolidation for roughly the next week. On a weekly chart, gold prices remain near record highs.

Walsh is widely seen as a more hawkish pick. Markets had been expecting Hassett, but that did not happen — so traders found a reason to take profits, and they are acting on it.

Regardless of who the final choice is, the Fed is unlikely to adjust rates in the near term. That makes last Wednesday’s sharp surge in metals look absurd, and it set the stage for Friday’s collapse. From a technical analysis perspective, this correction was urgently needed; but from a supply-and-demand perspective, the market has repeatedly become overstretched and run out of control.

Market interpretation:

In the foreseeable future, unless conditions spiral — for example, if equities truly suffer a major correction — every dip here will continue to be seen as a buying opportunity. The underlying driver remains governments’ use of inflation to dilute debt, and that trend is unlikely to change.