Precious Metals Tumble as Middle East Tensions Ease and Rate Cut Bets Fade

Bullion markets faced significant headwinds on Monday following a sharp reversal in investor sentiment regarding Federal Reserve monetary policy. Gold and silver prices declined sharply as the U.S. dollar strengthened, while geopolitical developments in the Middle East showed signs of de-escalation, contributing to a bearish shift in precious metals demand.

Gold and Silver Face Triple Headwinds

Front Month Comex Gold for February delivery fell by $91.40 (or 1.94%) to $4,622.50 per troy ounce, continuing losses from the previous two trading sessions. Front Month Comex Silver for February delivery also retreated by $1.5120 (or 1.93%) to $76.778 per troy ounce. The selloff was triggered by a confluence of factors that shifted market dynamics away from safe-haven assets. The U.S. dollar index surged to 97.68, gaining 0.69 points or 0.71% intraday, making denominated commodities less attractive to international buyers and amplifying the decline in precious metals.

Warsh Nomination Reshapes Fed Rate Cut Expectations

A pivotal catalyst for the shift came from President Donald Trump’s announcement naming Kevin Warsh as his pick for the next Federal Reserve Chair. Warsh holds a reputation as an “inflation hawk,” prioritizing price stability over employment growth—a stance that sent shockwaves through markets positioned for near-term rate reductions. Following the announcement, Front Month Comex Gold for February delivery nosedived to $4,713.90 per troy ounce, while silver experienced steeper losses, reaching $78.290 per troy ounce. Market participants rapidly unwound bets on multiple Fed rate cuts in 2026, fundamentally altering the risk-reward calculus for inflation hedges.

Though some opposition emerged from within Trump’s party—notably from North Carolina Senator Thom Tillis, who sits on the Senate Banking Committee—the nomination effectively shifted investor expectations toward a more hawkish monetary policy stance. Tillis conditioned his support on the resolution of ongoing Justice Department investigations into current Fed Chair Jerome Powell’s conduct.

Middle East De-escalation and CME Action Weigh on Prices

Tensions in the Middle East, which escalated to war-threat levels last week, cooled notably after Iran’s state media reported that President Masoud Pezeshkian ordered the commencement of nuclear negotiations with the United States. This development reduced geopolitical premium demand for precious metals. The previous week had seen heightened anxiety following Trump’s deployment of U.S. naval forces near Iran, coupled with ultimatums regarding Iran’s nuclear program.

Compounding the decline, the Chicago Mercantile Exchange Group announced higher margin requirements for precious metals futures effective immediately. For non-heightened risk profiles, gold margins increased to 8% from 6%, while silver margins rose to 15% from 11%. For elevated risk profiles, the adjustments were more pronounced: gold margins moved to 8.8% from 6.6%, and silver to 16.5% from 12.1%. These margin hikes reduced trading leverage and amplified price declines as traders pared positions to maintain compliance.

Manufacturing Expansion Bolsters Dollar Strength

Separately, economic data suggested underlying U.S. resilience despite a partial government shutdown that commenced on January 30. The ISM Manufacturing PMI unexpectedly climbed to 52.6 in January from 47.9 in December 2025—substantially exceeding forecasts of 48.5 and marking the first monthly expansion in manufacturing activity in twelve months. S&P Global’s Manufacturing PMI also improved, rising to 52.4 in January compared to the preliminary estimate of 51.9 and December’s five-month low of 51.8.

The improved manufacturing outlook reinforced the dollar’s strength, as persistent economic resilience could support the Fed’s ability to maintain higher interest rates for longer. This dynamic—where stronger economic data reduces rate cut expectations—created additional headwinds for non-interest-bearing commodities like gold and silver throughout the session.

Beyond the United States, diplomatic developments continued. Fresh trilateral talks on a U.S.-authored peace framework for the Russia-Ukraine conflict are scheduled for early February in Abu Dhabi, building on discussions held the previous month. While both Russia and Ukraine announced diplomatic intentions, hostilities on the front lines persisted despite Russia’s temporary suspension of attacks earlier in the week under Trump’s urging.