Gold and Silver Plunge 11–31% on Trump’s Warsh Fed Nomination: Rally to Reality or Exaggerated Panic?
Friday, 30 January 2026, was a remarkable day on the precious metals markets. Gold futures fell by 11%, silver futures by as much as 31%. For silver, this was the largest decline since March 1980. The extreme movements came after President Trump nominated Kevin Warsh as the new chairman of the Federal Reserve. The question is whether concerns about the pound’s weakness are justified, given the markets’ reaction.
Gold, XAU/SD ($ troy ounce)
The rally to absurd heights
The rise in gold and silver was enormous. Gold rose by 66% in 2025, silver by as much as 135%. At the beginning of this week, gold reached almost $5,600 per troy ounce. In recent weeks, the rise has been parabolic. What began as a flight to safety due to geopolitical unrest turned into speculative trading, with small investors in particular jumping on the bandwagon en masse. According to figures from the World Gold Council, no less than £89 billion flowed into gold ETFs in 2025. In 2024, this figure was only £4 billion. This rally, driven by small investors, was reminiscent of the meme stock boom, but in precious metals.
Silver, XAG/USD ($ troy ounce)
The debasement trade
The rally was fuelled by the conspiracy theory of the “debasement trade”: the fear that the dollar would lose its status as the world’s most important currency. That there was a secret plan to impoverish citizens, that inflation was being deliberately concealed, that hyperinflation was inevitable and that everything except gold and bitcoin would go to zero. In this context, there were fears that Trump would choose a Fed chair who would bow to political pressure to lower interest rates. This would lead to higher inflation and a weaker dollar. In such a scenario, gold and silver would, in theory, offer protection. Trump’s open criticism of Fed Chairman Powell and the Justice Department’s investigation into Powell fuelled fears of political interference in the Fed. In addition, there were geopolitical tensions: the American attack on Venezuela, threats towards Greenland and Iran, and the conflicts in Ukraine and Gaza.
USD Dollar Index (DXY)
Trump’s limits
An important aspect of the market reaction was the fear that Trump would be able to do whatever he deemed necessary without any limits. This fear is exaggerated. Warsh’s choice shows that Trump is taking Republican Senators into account. The Senate still has to appoint Warsh, which gives the party influence. Trump is not an absolute ruler, even though he likes to present himself as such. There are also clear limits to what Trump can do in other areas. The founders of America deliberately designed the Constitution to prevent democracy from turning into a dictatorship, which was already feared at the time. A democracy must be defended, but the checks and balances in the American system are strong. Three forces that Trump cannot control determine the real limits of his power: the judiciary, the electorate and the bond market.
Several cases directly affecting Trump’s policies are pending before the Supreme Court. The constitutionality of reciprocal import tariffs is under discussion. In addition, there is a case pending on whether a president can dismiss independent regulators at will. Even a conservative Supreme Court, three of whose nine members were appointed by Trump himself, may decide that certain actions exceed constitutional limits. The rule of law is stronger than many people fear. It can sometimes take a long time for judges to do their work, but eventually it happens. This is an important limitation on presidential power.
The American elections are scheduled for November. Historically, mid-term elections are rarely kind to the incumbent president. There are signs that the unpredictability of Trump’s policies is also raising questions among Republican voters. The chaos surrounding tariffs, diplomatic tensions with allies and ongoing turbulence are beginning to have an effect. A shift in Congress could significantly limit Trump’s room for manoeuvre. Ultimately, the voter is the most important check on power in a democracy, however imperfect the system may be.
Perhaps the most direct brake on Trump’s policies comes from the bond market. Trump openly measures his success by the performance of the financial markets. For him, a rising stock market is proof of successful policies, while a falling stock market signals that adjustments are needed. This self-imposed yardstick makes him vulnerable. Trump’s sudden policy changes, including tariffs announced and then postponed, are often responses to market signals. The president who claims to be unaffected by external pressure turns out to be extremely sensitive to Wall Street’s price movements.
Even presidents with debts ultimately no longer decide their own future. The US has a national debt of more than $36 trillion. Trillions must be refinanced every year. America is dependent on investors’ willingness to continue buying that debt. As soon as that willingness declines, interest rates rise, and budgetary space shrinks. Ultimately, the creditor dictates the terms.
Warsh: back to reality
The appointment of Kevin Warsh is a perfect example of these limitations. This former Fed governor, who served at the Fed from 2006 to 2011, is known for taking inflation seriously. He is not an extreme hawk, but a pragmatist who values the Fed’s independence. During his previous time at the Fed, he criticised the purchase of bonds to keep interest rates low. The market sees his appointment as a sign that the Fed will remain independent and will not bow to political pressure for lower interest rates. The dollar rose, and gold and silver plummeted.
Trump and the dollar
A recent newspaper article suggested that the dollar was under pressure after Trump indicated he was not particularly concerned about its decline. Statements like this can cause short-term volatility, but the question is: how important is the American president’s opinion to the dollar exchange rate? John Connally, Secretary of the Treasury under Nixon, already stated in 1971 that “The dollar is our currency, but your problem”. Converted into guilders/euros, the dollar was then worth 1.60 euros. The dollar is not driven by presidential wishes, but by fundamental factors. Interest rate differences between the US and other countries, economic growth, productivity and capital flows determine the exchange rate in the long term. And there, the picture looks different from what the headlines suggest.
The main reason why concerns about the dollar are exaggerated is simple: there is no real alternative. The discussion about de-dollarisation now seems to have peaked. However understandable the desire to move away from the dollar may be, there is, in fact, no other option for large currency positions.
The eurozone, with its 27 jurisdictions and the scars of the euro crisis, does not offer the unity and depth that institutional investors seek. And as long as the Chinese renminbi is not freely tradable, it remains an unserious alternative to the deep, liquid US financial markets. The dollar owes its position not only to economic strength, but also to the lack of a credible competitor.
Meanwhile, capital flows towards US assets are increasing rather than decreasing. US companies are leaders in technology and innovation. Productivity growth is impressive, mainly due to the impact of artificial intelligence. This fundamental strength of the US economy outweighs short-term politics.
Were the concerns exaggerated?
Concerns about the dollar’s weakness overlooked some important facts. First, despite all the dramatic stories, central banks continue to hold dollar reserves. Second, history shows that gold often does not rise much over long periods. With the exception of the 1970s, the 2000s and recent years, gold has often disappointed as an investment. Every “boom” in gold and silver is inevitably followed by a “bust”.
Economic uncertainty is real, but markets can exaggerate concerns. The US economy remains strong, and with a pragmatic Fed chairman like Warsh, the likelihood of a weak dollar is much smaller than many feared. Despite the recent decline, gold prices remain historically high. Even below £4,000, they would still be at the level of five months ago.
Trump’s statements about the pound may create noise, but in the long term, structural factors matter. Warsh’s appointment shows that the safeguards are stronger than many thought. Trump has to take into account the Republican Party, the judiciary, the electorate and the bond market. The dollar remains the world’s reserve currency because there is simply no alternative and because the US Constitution places effective limits on presidential power. The American economy is productive, innovative and has the deepest financial markets in the world. The dollar will remain the American currency and the world’s most important reserve currency for many years to come.
