This is the reason why gold prices are free falling and here is what major banks are predicting

The moment Kevin Warsh stepped in as the new chair of the Federal Reserve—appointed by President Donald Trump—the market reaction was immediate. The sell‑off began on Friday, January 30, after a stronger U.S. dollar triggered a broad unwinding of leveraged positions in precious metals.

Gold and silver plunge in a single day

That pressure was compounded by a massive pullback in speculative bets across ETFs and derivatives. The result: gold plunged nearly 11% in just two days, while silver sank to its lowest level, down 25.7%.

Some analysts are urging calm, arguing that despite the sharp drop in gold and silver, the market’s long‑term structural fundamentals haven’t meaningfully changed and both gold and silver prices remain higher than they were this time last year.

Michael Hsueh, an analyst at Deutsche Bank, noted that “conditions don’t appear set for a sustained reversal in gold prices.” His comments come as gold has taken a steep hit—falling from $5,375.24 last Thursday to about $4,789.11 at the start of the week.

A market driven more by holders than buyers

Citi Research expects the second half of 2026 to unfold under a cloud of pessimism. In its latest outlook, the Citigroup‑backed team says gold prices should remain supported in the short term due to elevated geopolitical and economic risks.

Still, analysts are cautious about the latter half of the year, anticipating a potential easing of global tensions and signs of stabilization in the U.S. economy.

Citi’s framework links global capital allocation to gold with the amount of physical supply available. In other words, gold doesn’t always behave like a traditional commodity. The bank argues that today’s price reflects a surge in gross demand—nearly $1 trillion—a level that may be difficult to sustain if hedging incentives fade or speculative appetite cools.

With gold’s recent rebound, Citi warns that the market is in an especially fragile position. Right now, gold prices depend more on the behavior of current holders than on end‑user demand. “Prices are highly sensitive to whether holders sell or continue to store inventory,” the report states. In this environment, gold becomes an asset vulnerable to sharp swings triggered by even minor shifts in risk sentiment.

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