After hitting record highs in January, gold and silver prices have crashed significantly, driven by a “triple threat” of political, regulatory, and fiscal factors. Gold prices continued to fall on Monday, adding to the heavy losses seen at the end of last week. Gold prices dropped as much as 8% during the session and are now nearly 20% below the all-time high it touched at 1pm IST on Thursday. Silver fell even harder, plunging up to 14.6% on Monday, as per Bloomberg.
Just days ago, gold and silver were touching record highs. Prices shot up even faster in January as investors rushed into precious metals. Many were worried about rising geopolitical tensions, weakening currencies, and questions around the US Federal Reserve’s independence. But now that precious metals have crashed, here are the three factors driving the fall.
The Kevin Warsh effect: Trump’s Fed Pick triggers market jolt
The immediate trigger for Friday’s big selloff was news from the US. President Donald Trump‘s intend to pick conservative Kevin Warsh as the next head of the Federal Reserve shocked markets across the world. Warsh is viewed as more hawkish than previous contenders. This news has triggered a massive dollar recovery, making gold and silver more expensive and less attractive.
According to Bloomberg, many traders had bet that Trump would prefer a weaker dollar. But Warsh is seen as the toughest inflation fighter among the final candidates. His possible appointment raised expectations of tighter monetary policy, which would support the dollar, but on the other hand, hurt dollar-priced assets like gold.
CME Group Margin Hikes: Flushing out leverage
To combat the extreme volatility seen last week, the CME Group (which runs the COMEX exchange) raised margin requirements for several commodities for the second time in just three days. Gold margins were raised from 6% to 8%, silver from 11% to 15%, platinum from 12% to 15%, and palladium from 14% to 16%. Copper margins were raised too.
When the rules changed, traders who had borrowed money to bet on gold and silver were suddenly asked to put in more cash right before the market closed on Friday. Many of them didn’t have that extra money ready. So they had no option but to sell what they were holding, and sell it fast. Once those sales began, prices started falling quickly. As prices dropped, even more traders were pushed to sell because their losses grew bigger by the minute. That set off a chain reaction, one sale leading to another, and then another.
India’s Budget 2026: FM kept customs duties on gold and silver unchanged
Domestically, the Indian market was bracing for a potential cut in customs duties during the Union Budget presented on February 1. But, FM Nirmala Sitharaman kept customs duty rates on gold and silver the same as before. Importers will continue paying the existing duty rates when bringing these precious metals into India.
Currently, importing gold in any form attracts a 6% duty. This includes 5% basic customs duty (BCD) and 1% agriculture infrastructure and development cess (AIDC). Silver imports are taxed at 6% for eligible Indian residents, while others pay a higher rate of 36%. The government had earlier reduced the customs duty on gold from 15% to 6%, effective from July 24, 2024.
Even though a duty cut could have pushed prices down right away, hesitation before the budget kept buyers on the sidelines. Now, with the budget done and global prices falling, the domestic market is catching up and reacting late.