Although precious metals started 2026 as the best-performing asset class, January ended with a shocking reversal. What began as steady gains quickly gave way to one of the sharpest selloffs in recent history, culminating in the last two business days of January. Bloomberg called it the “last two days of carnage,” during which an astonishing $7 trillion vanished from the market.

The scale of the decline across precious metals was staggering. Gold fell from $5,600 to $4,700, silver plunged from $121 to $77, and platinum and palladium also suffered severe losses. Silver’s 27% single day drop on 30 January set a record, far exceeding the Hunt Brothers’ 1980 crash (-15%) and the December 2025 CME margin hike (-9%).

Source: StockMarket.news

The so-called “Great Metal Flush” was the result of speculation colliding with institutional pressures. Weeks of optimism for precious metals had been fuelled by a narrative trap: the widespread expectation that a dovish Fed Chair would replace Jerome Powell. This belief prompted heavily leveraged bets on rate cuts and a weaker dollar. That narrative collapsed in what became known as the “Warsh Shock”, when a Chair was appointed with a relatively orthodox approach to monetary policy and a bias to reduce the Fed’s balance sheet—moves that could negatively affect marketliquidity.

The leverage trap on COMEX futures amplified the shock. Falling prices triggered margin calls, forcing traders to sell positions, which drove prices down further in a cascade. The situation worsened when the CME Group changed the rules mid-January, adopting percentage-based margins and sharply raised requirements, significantly increasing the cost of holding positions.

At the heart of the crisis was traders’ extreme leverage: forced liquidations created a self-reinforcing loop in which selling, rather than fundamentals, dictated prices. External shocks compounded the problem. In China, the Shenzhen Stock Exchange suspended a UBS silver futures product trading at a 40% premium. Local investors, suddenly trapped, were forced to liquidate assets globally to raise liquidity, spreading stress to COMEX and accelerating the sell-off. This mirrors historical episodes like the Hunt Brothers’ crash, where abrupt margin changes punished highly leveraged positions. Ultimately, the collapse reflected structural and positioning issues rather than a reassessment of metals’ true value.

The dramatic moves seen over the past two sessions say more about positioning and narrative shock than about a fundamental deterioration in the macro outlook. Since Kevin Warsh’s name resurfaced, markets have largely reacted to his historical reputation rather than his more recent views.

Labelling Warsh a hawk, however, risks missing the bigger picture. His framework is more nuanced and arguably more market-friendly than the initial reaction suggests. Central to his thinking is the idea that the US economy is entering a phase of sustained productivity gains, driven in part by technological progress. If productivity is rising, rates do not need to remain structurally high to contain inflation. This is not a traditional hawkish stance, but a growth-oriented one that allows for lower short-term rates without sacrificing price stability.

Where Warsh does appear firm is on the balance sheet. He has been consistently critical of quantitative easing, viewing it as a tool that has outlived its crisis-era justification. His preference for a smaller Fed balance sheet explains the mild additional steepening of the yield curve following the announcement, as well as the clear anchoring of market-based inflation expectations, actually slightly down since the news. In practice, his approach could combine balance-sheet tightening with selective rate cuts, a “hawkish-dove” mix that tightens financial plumbing and market liquidity while easing conditions for the real economy.

This signals a shift in policy philosophy. The prior cycle was dominated by demand management, loose money and fiscal stimulus, which supported asset prices but did little to lift real incomes. The emerging framework places greater emphasis on supply-side dynamics: deregulation, domestic investment and capital expenditure. Growth, in his view, comes from output and productivity and not financial leverage.

Warsh has also demonstrated pragmatism when circumstances demand it. During the early stages of the pandemic, he was among the first to call for decisive action, weeks ahead of Jay Powell in calling for an aggressive response. He has proven to be a practical crisis manager, not bound by rigid academic.

Finally, concerns about an unchecked policy shift should be tempered by the Fed’s institutional structure. The chair remains influential, particularly in communication, but decision-making is distributed across the FOMC. Decision-making power is spread across a system designed to preserve independence, with staggered 14-year terms for Board members, independent appointments of regional Fed presidents, and equal voting rights across the twelve members of the FOMC.

Additionally, Kevin Warsh is not “replacing” Jerome Powell’s seat on the Board. Powell has not resigned his position as a governor, and his term runs for nearly three more years. Instead, Warsh is being nominated to fill the seat of Stephen Miran, whose term is expiring. This procedural detail matters. Warsh requires two confirmations, one to join the Board of Governors and another to be elevated to Chair. It’s a "two birds, one stone" play for the Senate, but the paperwork is a hurdle.