Yoinks, Scoob!

Gold and silver are seeing a sharp pullback today. Gold is down roughly 10% (slide 2), while silver is down a whopping 26% (slide 3)! A few key catalysts appear to be driving today’s selloff.

First, gold and silver were simply due for a pullback. Prices for both precious metals have risen aggressively over recent weeks, and it’s natural for investors to take profits after such a strong move higher. Some level of consolidation was expected.

Another major factor is today’s news that Kevin Warsh is set to become the new Fed Chair. Warsh is widely viewed as a more hawkish candidate, which makes this decision somewhat surprising. Trump has publicly pushed for looser monetary policy, but Warsh may be less inclined to cut rates or pursue quantitative easing (money printing). Gold and silver may have been pricing in looser monetary policy and dollar weakness—conditions that typically benefit precious metals—so this shift in expectations could be pressuring prices.

We also saw the December PPI inflation report come in hotter than expected. PPI rose 3.0%, versus expectations of 2.7%. This increases the likelihood of fewer rate cuts, which tends to support the U.S. dollar and weigh on gold and silver in the short term.

That said, I’m somewhat surprised by how negatively gold and silver are reacting to these developments. Tighter monetary policy typically hurts risk assets and, in theory, should increase demand for safe-haven assets like gold and silver. It makes me wonder whether investors were simply waiting for a catalyst or headline to lock in profits.

What do you think is driving this aggressive pullback in gold and silver today?

#gold #silver #fed #investing

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