Gold prices slid 3 per cent on Monday morning, extending a dramatic slump as investors concluded US President Trump may not be able to force the Federal Reserve to lower interest rates too far.
After a breakneck rally to start 2026, last Friday’s 9 per cent fall was gold’s largest single-day reversal in 40 years. The slump was sparked by perceptions Mr Trump’s nominee to be the central bank chairman, Kevin Warsh, would not lower interest rates as aggressively as previously hoped for.
The metal, known as a safe-haven asset in times of geopolitical risk, has tumbled 16 per cent from its peak in two trading sessions. The price dropped from $US5595 on January 30 to $US4706 an ounce on Monday.
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The wild moves pushed the S&P/ASX 200 share index 0.7 per cent lower on Monday morning as listed gold miners all tumbled. The local stock market is now headed for its fourth-straight day of losses underpinned by an expectation that the Reserve Bank of Australia will raise official interest rates 25 basis points on Tuesday.
The US dollar rose against the Australian dollar on Monday, as traders bet Mr Warsh is unlikely to dramatically cut US interest rates as a favour to President Trump, assuming his nomination is approved by Congress before a May 2026 start date.
“The unprecedented rally in precious metals prices has been largely driven by fears that a central bank heavily influenced by Trump would lower rates and trigger higher inflation,” said Australia & New Zealand Bank’s economics team.
“However, Mr Warsh is considered the toughest on inflation among the candidates for the role, lessening the likelihood of a dramatic easing of monetary policy.”
Gold miners fall
At noon, miners Newmont was 7.7 per cent lower at $159.92, Northern Star lost 7.9 per cent to $26.65, and Evolution lost 6.2 per cent to $13.80, although most doubled or tripled over the last 12 months of soaring prices for the metal.
Popular gold exchange traded funds (ETFs) that retail investors buy to track the metal’s price also tumbled, with the ASX-listed $6 billion Global X Physical Gold ETF seeing around $320 million in shareholder wealth wiped out as it lost 5.3 per cent in early trade.
AMP economist Diane Mousina said she expects gold can extend its two-year bull market in 2026.
“Given the heightened geopolitical climate of the last 12 months and likelihood of Trump pursuing America-First policies, it’s likely that the trend of the lower $US and support for precious metals is likely to continue,” said Ms Mousina.
On Monday, investment bank UBS also upgraded its gold price forecasts for the remainder of 2026 to an average of $US5200/oz as it said investors are likely to continue to sell US assets on worries over the erratic policymaking of Mr Trump.
However, the investment bank expects prices to retreat to around $US4900/oz by July 2027, as the heat comes out of a rally that has shocked analysts and economists.
Silver’s wild price swings
Elsewhere on Monday morning, the bitcoin price also extended a three-month fall to $US77,010 as the digital currency, associated with speculation, failed to support the nomination of Mr Warsh to take over from Jerome Powell as US Fed chairman.
Silver prices also surged 11 per cent to $US87.35/oz to claw back some of a jaw-dropping 30 per cent loss on Friday when the metal fell from a record high of $US121.79/oz to $US79/oz in a single session. Friday’s move meant the intraday fall of $US40/oz was larger than the metal’s outright price of $US39/oz just five months ago.
ANZ Bank’s economics team said the unprecedented volatility is being exacerbated by speculators in options markets who try to make profits from daily moves in the metal’s value, rather than traditional buy-to-hold long-term investors.
Fingers also pointed to leveraged ETF products for exaggerating the daily price moves. The two-times leveraged ProShares Ultra Silver ETF listed on the New York Stock Exchange crashed nearly 60 per cent on Friday, or double the 30 per cent tumble in the underlying silver price.
A two-times leveraged ETF effectively doubles the price move in the underlying asset, higher, or lower, and their availability for retail investors to speculate on has raised questions as to whether finance regulators should crack down on their use.
In Australia, local ETF giant Betashares is the main issuer of leveraged ETFs, which magnify retail exposure to daily swings in Australian and US share indices.
