Precious metals crashed. What happens next?

February 2nd, 2026

Thoughts of the Week

A volatile week finished with a bang. An engineer by education, I cannot help it thinking about tipping points of unstable structures or systems. There is the amazing concept of entropy, the natural process towards a disordered state, which is exactly how our universe (unfortunately) evolves. Think of a super clean room (a low entropy system) which is destined to be messier and dirtier when people start living in it ( higher entropy). As per the second law of thermodynamics, a low-entropy system cannot last without the constant input of energy to maintain this balance. But enough about physics.

Moving to the precious metals market, it was obvious that extreme euphoria, overcrowded positions, easy money and greed had led to a very low-entropy, unstable system which required a constant input of energy (i.e. more money and positive sentiment) into it, to maintain its balance. The natural result is that even solid investment cases like Gold can crack in this natural process to find another, more stable, equilibrium level. The media and analysts will try to find excuses and explanations of why Silver crashed by 30% on Friday, and Gold lost almost 20% in just a few days. Simply think physics ...

The question is what happens next. Firstly, the explosion of volatility and the release of energy (i.e. money leaving the commodities system) is a very positive sign. It was a much needed correction, even if it will claim victims in the process and some of them will never return to the trade. Whether this crash will signal the end of the bull market for precious metals or the consolidation at lower levels until the next leg higher is anybody's guess. The problem is that we do not know how many more stop loss orders have been triggered, as the crash took place when Asia and Europe were closed for the weekend. What we do know is that psychology of the weak hands will be shattered and an immediate return to the previous relentless rally seems highly unlikely.

In this chaotic new equilibrium state, Gold could outperform the other metals. It is important to note that the yellow metal is the preferred commodity for central banks and sovereign wealth funds and technically it looks like the 4500-4600$ levels can offer support. It is, however, a bit worrying that last week we saw large institutions and what we call "real money accounts" reduce exposure when Gold was hitting 5600$, according to the data from our investment bank relationships. Real money refers to physical positions and not speculative positions in the futures market, which means that real demand above 5000$ or 5500$ is much less than supply, at least for now.

There is the danger of the metals crash to spill into equities, in the short-term. Although highly uncorrelated asset classes, the fact that the ultra-bull market in metals had such a crash will undoubtedly dent the sentiment for high-flying stocks or themes. At the same time, the leveraged positions in metals and the margin calls taking place this morning means that traders will have to sell the most liquid of their investments to cover them , i.e. the most over-owned stocks. It is sure that in the next few days the situation will calm down and we can focus again on the upcoming significant Tech earnings reports (Amazon, Alphabet) and the rest of the markets.

What caught our attention

The FED kept rates unchanged at 3.75%, as expected. The decision was again split, as two committee members voted for a 25p rate cut. In the press conference Chairman Powell painted a more upbeat picture for the economy than last time, saying that the labor market seems to have stabilized. Although he emphasized that the next move is probably a rate cut, he also made it clear that there is no urgency. Currently, the market is pricing only one rate cut for the whole year, which compares to three or four cuts less than two months ago.

Kevin Warsh was announced as the next FED Chairman, starting in May. He was the youngest on record to serve as a FED Governor in 2006-2011 and he has lately been a public advocate of necessary reform and a critic of the FED's increasing influence on government spending and fiscal policy: "The FED has assumed a more expansive role inside our government on all matters of economic policy" . A big opponent of Quantitative Easing (QE), his main thesis is that the FED should reduce its balance sheet, somethin that seems almost impossible to do without making yields rise and unsettling the equity market. Interesting to watch the FED under his chairmanship for the second half of the year.

Preliminary January Eurozone inflation data confirmed the progress, even if they are a little worse than expected . In particular, German inflation fell to 2.1%, while in Spain it fell to 2.5% but in both cases the drop was not as much as expected. The headline EU number will be published on Wednesday with expectations for a drop to 1.7% and core is expected to have fallen to 2.2%, a rather benign environment for the consumer.

Eurozone's 4th quarter GDP rose by 0.3% q/q (1.3% y/y) slightly above consensus expectations Lithuania (+1.7%) was the largest positive contributor, while Ireland and Estonia were laggards with zero growth. Among the large Eurozone countries, Spain (+0.8%) once again outperformed). For the full year, GDP growth was 1.5% (up from 0.8% in 2024). Higher growth and inflation around 2% means that the ECB is very unlikely to move in any direction, at least for the next 6-9 months.

Markets' reaction

Global equities had a volatile week. The first mega cap earnings reports were mixed (Microsoft -10%, Meta Platforms +10%) which led to a mildly negative week for Nasdaq (-0.2%), but the S&P500 managed to produce a small gain (+0.3%). Energy (+4%) was again the outperformer, confirming our view since a few weeks ago that it warrants a position in portfolios. Europe rebounded, with its main indices up about 0.3%, with the help of Swiss and UK stocks. The German DAX lost 1.5%. Energy (+3.5%) was also strong in Europe, followed by Utilities (+3%) and Staples (+1.5%).

The bond market was mixed. European yields moved lower as the EURUSD was breaking above 1.2000, with the 10yr Bund falling to as low as 2.80% before returning to 2.83%. The rise in the euro could lead the market to think that the ECB will have to cut rates, especially with inflation being again below 2%. On the contrary, the US 10yr yield rose again closer to 4.30%, as the rate-cut bets have started to unwind. We maintain our positive stance for high quality 4-6 yr EUR bonds , which proved to be a protective asset during the volatility of last week.

Precious metals , as already mentioned had an extreme week. Gold reached a high north of 5600$, only to finish below 4800$, while Silver touched 120$ and fell below 80$ on Friday. Platinum continued to underperform Gold, and is now almost 30% lower from its recent peak.

The dollar sold off further as the EURUSD broke the significant resistance at 1.1850. Trump said that he is not concerned about the dollar's fall and traders pushed the exchange rate to as high as 1.2080, before Treasury Secretary Bessent intervened in favor of a stronger dollar. The metals' crash on Friday and the repurchase of dollars by those liquidating their positions pushed it higher, with the EURUSD finally ending the week at 1.1850.

Chart of the week:

Gold's volatility was a reason for short-term caution.

Early last week I shared the above chart with my colleagues , as a red flag for what happens next with Gold and metals. Gold was trading around 5600$ and Silver was testing 120$ at the time. (They are now 20% and 35% lower, in a matter of days.) The reason I chose this chart is that it shows Gold's volatility index and the red line shows where we currently are, compared to its history. As you can see, we are currently at about the highest levels of the last fifteen years, setting aside March of 2020 when news about the pandemic broke and July 2011 when the Eurozone was under attack. In our morning meeting, we spoke about the high leverage as well as the appearance of Gold-related articles on the cover page of newspapers, and all this made us nervous. The current levels of volatility had in the past proved to be short-term peaks for Gold's price and just a few hours later, again it proved to be the case. For sure, we have to go through a phase where weak hands and positions must be wiped out and volatility will eventually subside. The mini crash also means that any future price appreciation should follow a more normal path, leaving on the sidelines the momentum chasers and speculators, who might have been permanently damaged and will look elsewhere for "a quick buck". The abundance of on-line casinos can satisfy some of them.

Disclaimer

• The content of this document has been produced from publicly available information as well as from internal research and rigorous efforts have been made to verify the accuracy and reasonableness of the hypotheses used. Although unlikely, omissions or errors might however happen.

• The data included in this document are based on past performances and do not constitute an indicator or a guarantee of future performances. Performances are not constant over time and can be positive or negative.

• This document is intended for informational purposes only and should not be construed as an offer or solicitation for the purchase or sale of any financial instrument and it should not be considered as investment advice. The market valuations, views, and calculations contained herein are estimates only and are subject to change without notice. Any investment decision needs to be discussed with your advisor and cannot be based only on this document.

• This document is strictly confidential and should not be distributed further without the explicit consent of Kendra Securities House SA.

• Sources: Chart of the Week : KSH /CBOE