Gold & Silver Plunge: Fed Pick Triggers Market Shock

Canadian stocks registered their most significant drop since April, with the S&P/TSX Composite index falling 3.3% on Friday. The decline was heavily influenced by a dramatic slump in precious metals miners after gold and silver prices experienced historic intraday losses, halting a recent rally.

Gold prices tumbled over 12%, falling below $5,000 an ounce, while silver saw a record intraday decline of up to 36%. This sharp reversal occurred as the US dollar rebounded strongly, influenced by President Trump's announcement of his intention to nominate Kevin Warsh as the next Federal Reserve chair. Investors had previously favored metals amid concerns about currency debasement and geopolitical tensions.

The nomination of Warsh, perceived as a strong inflation fighter, raised expectations of a monetary policy that would strengthen the dollar and consequently weaken dollar-denominated bullion. This market reaction, coupled with potential month-end rebalancing, contributed to unwinding the consensus macro trade of a weaker dollar and higher precious metals prices.

Even with Friday's sharp pullback, gold maintained a monthly gain of 13%, and silver was up 19% for the month. However, the extreme volatility and rapid price increases had previously triggered technical warning signs, indicating that both metals might have been overbought and due for a correction, with gold's relative-strength index reaching its highest in decades.