Gold and Silver Surge Then Crash: What Investors Should Know

The start of 2026 saw gold and silver surge to record highs, then crash. Gold prices peaked above US$5,500 (A$7,900) per ounce for the first time, well above previous highs, before dropping to around US$5068 (A$7,282). Silver had been gaining even faster than gold. It rose above US$120 (A$172) per ounce, marking one of its strongest runs in decades, before crashing to US$98.50 (A$141.50).

So, what causes these surges and falls? And what should everyday investors understand about the risks of investing in precious metals at this moment?

Why did gold hit new highs?

Gold remains the traditional safe haven: an asset purchased to safeguard savings during financial concerns. Amid rising international political tensions, looming trade-war threats, unclear interest-rate signals, and potential shifts in the global power structure, investors are turning to assets that appear stable amid widespread uncertainty.

The sudden decline in gold and silver prices was triggered by financial markets responding to early reports of Donald Trump’s nomination of Kevin Warsh as chair of the US Federal Reserve. As the US central bank significantly influences global financial stability, central banks worldwide have been rapidly purchasing gold, strengthening its status as a safe haven during times of uncertainty.

But it’s not only large institutions influencing the market. Retail investors in Australia and abroad—individuals trading smaller amounts—have also contributed. These investors are increasingly viewing gold, silver, and other precious metals as a hedge against uncertainty and as a momentum investment—buying to stay in step with market trends.

As prices increase, more everyday investors are entering the market, mainly via gold exchange-traded funds (ETFs), which offer an easy way to invest without the need to store physical gold bullion.

What’s been driving silver’s surge?

Although gold dominated headlines throughout much of 2025, silver has been the true standout. The metal had increased by over 60% in the last month, significantly surpassing gold’s solid gain of approximately 30%. Unlike gold, silver exhibits a dual nature. Growing industrial demand, especially for clean energy solutions like solar panels, electric vehicles (EVs), and semiconductors, is fueling its popularity. This dual appeal—serving as a safe haven and a sought-after industrial commodity—is attracting investors who believe prices will continue to rise for various reasons.

Each solar panel contains approximately 20 grams of silver, and the solar industry accounts for nearly 30% of the world’s total silver demand. EVs also require 25–50 grams of silver each, and AI data centres need silver for their semiconductors.

The key point? The silver market has experienced a supply deficit for five straight years. We are using more silver than we mine, and since most silver is produced as a byproduct of other metals, opening new silver mines isn’t a straightforward solution.

Retailers now step in. Bloomberg data indicates a significant increase in retail purchases of silver ETFs over the past year, highlighting growing interest. Over the last year, gold ETF trading on CommSec, one of Australia’s top online investment platforms for retail investors, rose by 47%, with net purchases totaling A$158 million, underlining gold’s ongoing role in investment portfolios. Meanwhile, silver trading, at A$104 million, increased by a remarkable 1,000% from the previous year, suggesting retail investors are engaging in more frequent, smaller trades. The pattern is evident: gold remains the primary stable investment, whereas silver has become more of a speculative asset.

Now Enters Kevin Warsh

After months of speculation, US President Donald Trump announced his plan to nominate Kevin Warsh as the next Federal Reserve chair. This news has garnered significant attention, given Trump’s ongoing disputes with the Fed and its current chair, Jerome Powell. Warsh seems to be more autonomous and is known for his stance as an inflation “hawk”.

The announcement caused an immediate and sharp decline in gold and silver markets. Following months of record-high prices and inflated valuations, spot prices for gold and silver dropped by 9% and 28%, respectively. The US stock market also declined, with all major indexes posting modest losses.

Interestingly, the market crash can be seen as an early sign of support for Warsh’s independence and suitability for the position, primarily because of concerns about Trump’s meddling with the Fed.

Grasping this involves understanding Trump’s continuous disputes with the Federal Reserve and the crucial role of central bank independence in the current global financial landscape. Over the past year, Trump has engaged in an unprecedented confrontation with the Federal Reserve.

Trump nominated Jerome Powell as Chairman in 2017. However, their relationship deteriorated when Powell did not lower interest rates as quickly as Trump preferred. In a typical blunt fashion, Trump called Powell a “clown” with “some real mental problems” and stated, “I’d love to fire his ass.”

The conflict escalated from heated debates to legal measures. Trump’s Justice Department announced an investigation into Federal Reserve Governor Lisa Cook for alleged fraud related to historical mortgage records. Surprisingly, last month the Department also launched a criminal investigation into Jerome Powell for alleged excessive spending on Federal Reserve office renovations. Both sets of allegations are widely regarded as unfounded. The case is currently awaiting a decision from the Supreme Court.

Powell strongly countered Trump, clarifying that the legal threats arise from the Federal Reserve’s choice to set interest rates based on expert judgment for the public interest, rather than the President’s wishes. He was backed by 14 international central bank leaders, who emphasized that “the independence of central banks is essential for ensuring price stability, financial security, and economic stability.”

Historically, presidential interference with the Fed significantly contributed to the stagflation crisis of the 1970s. More recently, countries such as Argentina and Turkey have faced serious financial crises driven by attempts to interfere with their central banks’ independence.

The Federal Reserve controls U.S. interest rates. In essence, lowering interest rates can boost economic growth and create more jobs, but it might also cause inflation. On the other hand, increasing interest rates helps curb inflation but can lead to higher unemployment and slower growth. Achieving the right balance is the Federal Reserve’s primary duty. Its independence is vital to guarantee that decisions are driven by the best evidence and the economy’s long-term needs, rather than short-term political interests. An inflation “hawk’ prioritizes fighting inflation, whereas a “dove” focuses more on growth and employment.

During Warsh’s earlier tenure at the Federal Reserve, he gained a reputation as a committed inflation hawk. Even after the 2008 global financial crisis, Warsh continued to prioritize controlling inflation over job creation. Considering Warsh’s previous disagreement with Powell over interest rate cuts, he might seem an unusual choice. However, more recently, Warsh has softened his stance, aligning with Trump’s criticism of the Fed and calls for lower rates. It is uncertain whether he will maintain this support or revert to hawkish views, which could lead to future clashes with Trump.

The decline in gold and silver prices, along with falling stock markets, indicates that investors see interest rate cuts as less likely under Warsh than under other candidates. Gold and silver usually increase in value during times of instability or inflation fears. The earlier record highs were driven by multiple factors, including global instability, concerns over Fed independence, and a speculative bubble. That Warsh’s appointment has triggered a market correction in precious metals suggests investors expect lower inflation and enhanced financial stability. The US dollar’s appreciation supports this view.

Investors should note that volatility has both positive and negative aspects. Between February 2025 and just before the sudden decline, silver’s price rose 269%. Even before that decrease, silver’s remarkable gain was accompanied by a 36% “annualized volatility,” indicating how much its price fluctuates within a year. This was nearly twice gold’s 20% volatility over the same period. Practically speaking, as demonstrated, rapid rises often lead to equally swift declines.

Retail investors often buy near the peak after sharp price jumps, leading to poor entry points. Meanwhile, professional investors and central banks have been steadily accumulating gold and silver over the years at much lower prices. Unlike shares or bonds, metals do not generate dividends or interest. Your total return depends solely on price increases from already high levels. As recent days have shown, the risk of significant declines remains considerable. Financial advisers usually recommend that precious metals make up 5–15% of a diversified portfolio. In light of recent extreme price volatility, adhering to this guideline is more important than ever.