Gold and Silver Extend Losses as Key Support Levels Hold

Precious metals continued their sharp retreat today, with both gold and silver failing to reclaim critical technical levels that had previously served as support, triggering further liquidation in an already fragile market environment. The renewed weakness underscores the severity of the technical damage inflicted during last Friday's historic sell-off and raises questions about the sustainability of what had been the most powerful bull runs in metals history.

As highlighted in our previous analysis, the inability of silver to regain the $90/oz threshold and gold's failure to recapture the $5,000/oz level represented a pivotal technical juncture that suggested additional downside risk remained. That bearish scenario materialized in full force today, with both metals experiencing severe pressure as those price points—which had served as psychological and technical support during the recent rally—now function as formidable resistance barriers.

Gold plunged $187, or 3.78%, to settle at $4,776.40 per troy ounce in what marked one of the sharpest single-day declines in recent months. The yellow metal's retreat took it back below key moving averages and support zones that technical analysts had been monitoring closely.

Silver, however, suffered an even more dramatic decline, losing $17.23, or 19.56%, to close at $70.93/oz. The white metal's heightened volatility—a characteristic that has defined silver throughout this cycle—was on full display as the percentage decline approached 20%, a threshold that some market participants define as entering bear market territory from recent highs.

The magnitude of silver's decline reflects its smaller market size and higher beta relative to gold, characteristics that amplify both gains and losses. When momentum shifts, as it has over the past several sessions, silver typically experiences more violent price swings than its larger counterpart.

Today's sell-off effectively erased the modest two-day recovery that had followed last Friday's historic rout—the worst single-day decline for precious metals in decades. The speed and magnitude of the reversal has raised legitimate questions among market participants about whether the current cycle has already reached its peak, even as the rally from its inception would still rank as the second-largest price appreciation in the metals' recorded history.

The failure to sustain even a brief recovery bounce is particularly concerning from a technical perspective. In healthy bull markets, sharp corrections are typically met with aggressive dip-buying that creates V-shaped recoveries. The inability of buyers to defend key levels suggests that the character of the market may have fundamentally shifted, at least in the near term.

Chart patterns are now showing clear signs of distribution, with lower highs and lower lows forming after the breakdown. Volume patterns during the decline have been substantial, indicating genuine selling pressure rather than simply a lack of buyers. The velocity of the moves—both the initial collapse and today's renewed weakness—suggests programmatic and systematic selling may be contributing to the downward pressure.

Market dynamics had become increasingly stretched heading into last week's breakdown, creating conditions ripe for a violent unwinding. Investor positioning in physical precious metals had grown substantially over recent months, with both institutional and retail participants adding exposure as prices climbed to unprecedented levels.

Exchange-traded products, particularly leveraged vehicles designed to provide two or three times the daily return of gold and silver, experienced heavy inflows as momentum-chasing investors sought to amplify their exposure to the rally. These products, while popular during strong trending periods, can exacerbate declines when the trend reverses, as their daily rebalancing requirements force selling into declining markets.

Adding to the structural vulnerability was a surge in call-options activity across both gold and silver futures and ETF options markets. The proliferation of short-dated call options created substantial "gamma" exposure for market makers, who were forced to buy underlying futures as hedges when prices were rising. This dynamic created a positive feedback loop on the way up but has reversed into a negative spiral as those same market makers unwind hedges as options move out of the money.

Anecdotal evidence from commodity trading advisors (CTAs) and trend-following funds suggests that systematic strategies had built up near-maximum long positions in precious metals. These algorithmic strategies, which account for a significant portion of futures market participation, are typically late to enter trends and equally late to exit, meaning their unwinding may still have further to run.

The initial collapse during Asian trading hours on Friday—when liquidity is typically thinner than during London or New York sessions—set off a cascade of stop-loss orders and margin calls that accelerated the decline. The selling pressure extended into early-week sessions as leveraged positions were liquidated and risk managers across the investment landscape reassessed their exposure to what had become a crowded trade.

Bargain hunting emerged during Tuesday and Wednesday sessions, providing temporary stabilization as some investors viewed the sharp pullback as a buying opportunity. Gold managed to recover approximately $300 from its Friday lows, while silver bounced nearly $10 from its worst levels. However, that relief proved fleeting as the failure to reclaim the key $5,000 and $90 levels for gold and silver, respectively, triggered renewed selling pressure.

The inability to sustain any meaningful bounce has forced even some bullish analysts to reassess their near-term outlook. Several research houses that had been calling for higher prices have now issued more cautious guidance, with some suggesting a period of consolidation may be necessary before the next leg higher can develop—if indeed there is to be a next leg higher.

Against this technical backdrop, markets are now attempting to gauge the monetary policy implications following Kevin Warsh's nomination as Federal Reserve Chair. The nomination has introduced a new element of uncertainty at a time when the market is already grappling with significant technical headwinds.

In an NBC News interview on Wednesday, President Donald Trump stated unequivocally that he would not have nominated Warsh had he expressed intentions to raise interest rates. The president went further, adding there was "not much" doubt the Fed would lower rates again in coming months. These comments represent an unusually direct public intervention into what is traditionally viewed as the independent domain of monetary policy.

While rate cuts typically provide a fundamental tailwind for precious metals—which offer no yield and become relatively more attractive in lower-rate environments where the opportunity cost of holding them diminishes—the current price action suggests technical factors and positioning unwinding are dominating near-term sentiment over fundamental considerations.

The relationship between interest rates and precious metals, while generally negative (lower rates support higher metal prices), is more nuanced than simple correlation suggests. Real interest rates—nominal rates adjusted for inflation expectations—are often viewed as the more critical driver. In an environment where rate cuts are occurring due to economic weakness rather than as a preemptive measure, the implications for precious metals can be mixed.

Furthermore, the market's current focus appears to be on the unwinding of speculative excess rather than fundamental drivers. Even dovish monetary policy signals have failed to arrest the decline, suggesting that technical and structural factors have temporarily overwhelmed traditional fundamental analysis.

Some strategists argue that once the current liquidation cycle runs its course, the fundamental case for precious metals—including concerns about fiscal sustainability, geopolitical tensions, and currency debasement—will reassert itself. Others counter that the damage to market structure and investor psychology may take considerable time to repair, particularly if prices continue to deteriorate.

In the immediate term, technical analysts will be watching several key levels. For gold, the $4,700 level represents significant support, with the 200-day moving average not far below. A break of these levels could open the door to a deeper retracement toward $4,500, where substantial buying occurred during the initial phase of this rally.

Silver faces even more precarious technical conditions, with the $70 level now serving as critical support. A failure here could see a rapid move toward $65 or $60, levels that would represent a roughly 30-35% decline from recent highs—painful but not unprecedented for the volatile metal.

Open interest in futures markets will provide important clues about whether the liquidation is nearing completion. Substantial declines in open interest alongside falling prices would suggest long liquidation is progressing, potentially setting the stage for a eventual stabilization. Conversely, rising open interest on declines would indicate new short positions are being established, which could fuel further weakness.

Market participants will also be closely monitoring developments on the policy front, including any additional comments from President Trump regarding monetary policy, statements from Kevin Warsh during his confirmation process, and economic data that might influence the Fed's rate trajectory.

For now, however, the technical picture dominates, and until clear signs of stabilization emerge—including the ability to reclaim and hold key support levels—the path of least resistance appears to be lower. Investors who maintained discipline and avoided chasing the rally at elevated levels may yet find more attractive entry points in the weeks ahead, though attempting to catch a falling knife carries its own risks.

The coming sessions will be critical in determining whether this represents a healthy correction within an ongoing bull market or a more significant reversal that reshapes the metals landscape for months to come.

Wishing you as always good trading,