Precious metals crash after Fed chair nomination
The nomination of Warsh as the new chair of the US Federal Reserve (Fed) turned into a nightmare for precious metals. Prices plummeted at an unprecedented pace as those who fuelled the amazing ascent started to sell. Silver stole the show, dropping more than 25% for its largest one day decline ever. Platinum and palladium lost more than 15%, while gold was down almost 10%.
We believe this market event was driven by the expected weakness of the US dollar, reflecting fears of increasing political interference with the Fed and a potential loss of trust in the US dollar as the world’s reserve currency.
For investors who want USD diversification, foreign exchange alternatives matter
We would not over-interpret the metals’ sell-off, however, as a change in the longer-term case for real assets. If anything, the speed of the move underscores how crowded hedges can become, and why forced selling often creates entry points. Gold and silver look more like a medium-term buying opportunity than a broken story, especially with fiscal pressures unresolved and global politics still carrying a risk tail. For investors who want USD diversification without relying solely on metals, foreign exchange alternatives matter: safe-haven Swiss CHF and Japanese JPY aside, selective exposure to commodity currencies like the Australian AUD and the Norwegian NOK complement the hedge book.
The NOK and the AUD – two of our bullish currency calls based on the high carry in the G10 currency space – stand out with the strongest year‑to‑date performance vs the USD. Regarding the AUD, the Australian Q4 CPI reported last week a rise to 3.7% y/y, driven by robust growth and a tight labour market.
Why the USD is holding steady: The 3 market pressures that eased
Amidst the storm in both the metals and currency markets last week, the USD is consolidating and holding steady. This is because the three big issues surrounding the USD that had pushed investors into renewed USD selling have faded:
- President Trump’s inconsistent foreign policymaking has lost some of its scare.
- Concerns about USD debasement receded after US Treasury Secretary Bessent backpedalled on President Trump’s earlier comments about not caring about a weak USD, suggesting that policymakers continue to prefer the USD’s strong role as the global reserve currency.
- Worries about Fed independence diminished following President Trump’s nomination of Kevin Warsh as the new Fed chair last Friday.
We check the box on this next leg of USD weakness, which again showed how quickly the USD can fall when markets question the trust in the currency and in US institutions. This aligns well with our view that structural outflows render the USD vulnerable to interruptions making diversification important.
What does this mean for investors?
The nomination of Kevin Warsh is being sold as a ‘regime change’ at the US Federal Reserve (Fed), and markets have started buying the rumour. Bringing the first lesson of the Warsh era before it has even started: policy narratives meet market microstructure. The second is more strategic. A hawkish Fed chair with political proximity raises questions that the market cannot answer yet. What does ‘regime change’ mean in practice: a tighter balance sheet, less data-dependency, or a red-hot economy? Until Warsh clarifies his framework, markets may remain in soul-searching mode.