Gold and silver prices were sky high, but one Donald Trump decision sent them into freefall

The strong rally that kept gold and silver prices rising for months suddenly stopped. President Trump announced his pick for the next head of the Federal Reserve, Kevin Warsh, on Friday morning. The news immediately pushed the dollar to its strongest level in months and completely changed what people expected from U.S. monetary policy.

If you were counting on those safe-haven assets, this sudden drop must feel really bad. This wasn’t just a small correction. Gold had its worst selloff since 2013, and silver posted its steepest one-day drop going all the way back to 1980.

Why did one name cause such a big reaction? According to Fox News, Warsh is widely known as a free-market inflation hawk. He’s very disciplined and his views are heavily influenced by economist Milton Friedman. Warsh has long argued that inflation is mainly caused by printing too much money. He worked at Morgan Stanley and made history as the youngest person ever to serve on the Fed’s board back in 2006, when he was only 35.

Warsh’s track record suggests tighter monetary policy ahead

This core belief is the key to the market panic. For years, Federal Reserve policy has focused on keeping borrowing costs low, but Warsh’s approach signals a sharp change. Investors see his record as pointing to a far more disciplined approach to monetary policy. 

Fighting inflation under his framework would require much tighter monetary policy, which almost always includes higher interest rates. Higher rates are generally great for strengthening the U.S. dollar, but they are terrible for gold and silver. When the dollar is strong, investors don’t need precious metals as protection. 

This gives investors less reason to seek safety in gold and silver, causing a massive selloff in both metals. That’s exactly what happened right after the announcement. This crash wiped out months of gains. Before this announcement, the rally had been truly incredible, pushing both metals to fresh highs. 

For months, investors were piling into these traditional safe havens because they were deeply worried about inflation, ongoing trade tensions, and general concerns about the long-term stability of the dollar under President Trump’s economic policies.

These sharp swings are really shaking people who had turned to gold as protection against policy uncertainty. Many retirement-age Americans, who viewed gold as the safest place to park their savings, are now dealing with serious volatility. 

The sudden reversal has raised questions about how much more volatility could lie ahead, especially as the markets prepare for further policy signals from Washington and the potential changes Warsh will bring to the Federal Reserve. Trump has been making several controversial moves recently, including his calls for unprecedented Republican voting control ahead of the midterm elections.

Despite the sudden selloff, it’s not all bad news for the gold market long-term. Demand for gold has been steadily supported by foreign central banks, including China. These nations have been actively moving their reserves away from the U.S. dollar due to ongoing geopolitical tensions. 

Meanwhile, political tensions continue domestically as Trump recently attacked Ilhan Omar over her income, drawing sharp responses from the Minnesota representative. That steady buying activity from foreign central banks should provide some underlying support for the metal moving forward.