Gold and silver prices fall by up to 27%, ETFs crash over 14%; here’s why

The white metal contracts for March delivery climbed nearly 9% on January 29 to surpass the ₹4.2 lakh per kg mark on the Multi Commodity Exchange (MCX).

Meanwhile, gold futures also fell on Friday, declining by 17.1% to close at ₹1,52,345 per 10 gram on the MCX, and touched an intraday low of ₹1,50,849 per 10 gram during the session. Gold contracts for April expiry touched a lifetime high of ₹1,93,096 per 10 gram on Thursday.

Even gold and silver ETFs crashed up to 14% in the morning trade on January 30 after a record rally on Thursday.

The precious metals began to decline sharply amid speculation that the US Federal Reserve may get a more hawkish chair who would introduce fewer rate cuts, thereby supporting the US dollar.

Record rally

On Thursday, gold and silver breached records in both domestic and international markets. Silver prices in Delhi surged by ₹19,500 to a new record high of ₹4,04,500 per kg, while gold soared by ₹12,500 to a fresh peak of ₹1,83,000 per 10 gram.

In the international market, gold added $177.14, or 3.3%, to hit a record high of $5,595.02 per ounce. Silver prices in the overseas markets rose sharply, gaining $3.59, or 3.07%, to reach a record of $120.45 per ounce.

The precious metals rose on Thursday due to tensions in Iran, falling currencies and strong safe-haven demand. Gold and silver are considered safe-haven assets; investors turn to them during uncertain situations.

Why did gold and silver fall on Friday?

Following a stellar rally on Thursday, gold and silver prices started falling after US President Donald Trump announced plans to select the new US Federal Reserve chair on Friday.

Amid speculation that the US Federal Reserve may get a more hawkish chair who would introduce fewer rate cuts and support the US dollar, precious metals declined.

"So, a potentially less dovish Fed Chairman pick, a rebound in the dollar and gold giving way to overbought conditions have contributed to the decline in the price of the precious metal," as per a Reuters report quoting KCM Chief Trade Analyst Tim Waterer as saying.

After precious metals had already fallen by up to 18%, President Donald Trump’s nomination of Kevin Warsh as the next US Federal Reserve Chair on Friday evening triggered a sharper fall in prices.

The massive decline was also driven by heavy speculative trading and profit-booking. However, even after the fall on Friday, gold and silver prices remain elevated.