In recent days, the commodity market has been exceptionally volatile for investors in precious metals. Gold and silver, traditionally considered among the safest investments or ‘safe havens’ during uncertain times, have witnessed sharp and historic price declines. This sudden turmoil has left many investors puzzled. While prices have fallen significantly from their record highs, Union Budget 2026 has added another layer of uncertainty to the market’s direction.
This downturn is not being seen as a routine correction. Instead, it is being viewed as one of the steepest single-day declines in decades. Investors are now faced with a key question: does this fall present a buying opportunity, or is caution still warranted? Let’s take a closer look.
What’s Happening?
This decline served as a clear warning for the commodity market, as the sudden drop in gold and silver prices on January 30 was rarely seen in recent years. A nearly 30% fall in silver and a 15% drop in gold signaled that prices had moved far ahead of their normal pace. This was not just a technical pullback but one of the largest single-day declines since 1980. The sharp ‘free fall’ was so severe that lower circuits were triggered on silver futures contracts, highlighting the market’s imbalance.
However, an interesting reversal followed on February 2, 2026, when prices bounced back after intense volatility. After falling close to 20% at the start of the session, Gold and Silver ETFs staged a strong recovery, regaining around 10% by mid-trade. This rebound came as investors booked profits after the steep sell-off from record levels, while many traders unwound leveraged positions. Although panic selling dominated early trading, signs of price stabilisation and recovery soon began to emerge.
Key Reasons Behind the Decline
This sharp fall was not driven by technical factors alone. Several geopolitical and economic developments also played a role.
Kevin Warsh’s Appointment News: Reports of former Federal Reserve Governor Kevin Warsh being nominated as US Treasury Secretary unsettled the market. Warsh is widely seen as supportive of a strong dollar and higher bond yields. Since gold typically moves in the opposite direction of the dollar, expectations of a firmer currency put pressure on gold prices.
De-escalation of Geopolitical Tensions: Hopes of a ceasefire in the Middle East, particularly between Israel and Hezbollah, eased investor anxiety. As fear recedes, demand for traditional ‘safe haven’ assets like gold tends to weaken, leading to lower prices.
Tariff Threats: Statements by US President Donald Trump about imposing tariffs on Mexico, Canada, and China added to global uncertainty. This shift in sentiment contributed to selling pressure across the commodity market.
Continued Decline in Gold and Silver ETFs
The recent turbulence had a significant impact on ETF investors. Many gold and silver ETFs hit their lower circuit limits, causing trades to fail even when sell orders were placed. This happened because circuit limits on ETF NAVs are pre-set at 20% for Silver ETFs and 12% for Gold ETFs. When prices breach these thresholds, trading is automatically halted to prevent panic-driven and uncontrolled declines.
The pressure intensified on Monday, February 2, 2026, as both domestic and global markets declined for a third straight session. On the NSE, Gold ETFs fell between 6% and 11% intraday, while Silver ETFs dropped nearly 20%, further unsettling investors.
What Does This Mean for Investors?
After such a sharp fall, it is natural to wonder whether this is the right time to enter gold and silver. While current prices may appear attractive, the environment remains highly volatile, and rushing in could increase risk.
Most experts suggest allocating only 10% to 15% of a portfolio to assets like gold and silver. This allocation can act as a hedge during periods of market uncertainty. ETFs are often preferred over physical metals due to their liquidity, safety, and transparency. Despite the recent downturn, these features continue to offer long-term advantages for investors.
What’s Next?
Despite the severity of the decline, many analysts do not view this as the end of the road for precious metals. Gold still remains elevated on a year-on-year basis, and long-term support factors such as sustained central bank buying, geopolitical risks, and global economic uncertainty remain in place.
At the same time, this episode highlights an important reality: even traditional safe-haven assets can weaken when rallies are driven by excessive leverage. In such conditions, even modest volatility can trigger sharp declines.
With the prospect of a tighter monetary stance under the new US Federal Reserve leadership, price swings in gold and silver could remain elevated in the near term. For investors, this is a phase that calls for patience and discipline. While the long-term outlook may remain constructive, short-term volatility is likely to persist.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
