The drop came after US President Donald Trump announced Kevin Warsh as his choice for the new Federal Reserve Chair. The development strengthened the US dollar, pushing it above the 97 mark as concerns over central bank independence eased following Warsh’s nomination.
A stronger US dollar is typically negative for gold because the yellow metal is globally priced in US dollars, making it more expensive for foreign buyers and thereby dampening demand.
On the MCX, gold February futures ended Rs 20,514 lower, or 12%, at Rs 1,50,440 per 10 grams. In the international market, spot gold dropped 9.5% to $4,883.62 per ounce at 1:57 p.m. ET (1857 GMT), after prices had climbed to a record peak of $5,594.82 on Thursday. US gold futures for February delivery settled 11.4% lower at $4,745.10.
Traders reassessed the market and moved to book profits after the yellow metal rallied to fresh record highs of Rs 1,82,130 earlier in the week. Experts noted that the sharp rise in recent weeks left prices vulnerable to a correction.
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“The primary trigger was the nomination of Kevin Warsh as the next US Federal Reserve Chair by President Trump. Mr Warsh, known for his hawkish stance on inflation control and emphasis on Fed independence, prompted a rapid macro re-pricing: the US dollar strengthened, real yields rose, and leveraged positions in gold and silver, viewed as overextended debasement hedges, unwound swiftly,” said Ponmudi R, CEO of Enrich Money. This led to violent liquidation, erasing billions in market value and flushing out weak hands in what he described as a classic euphoria-to-exhaustion phase, rather than signalling a structural bear market reversal.
Despite the severity of the pullback, the secular bullish structure heading into 2026 remains firmly intact, he added. Core drivers persist, with relentless central bank buying being the most significant. The correction serves as a healthy reset, purging excess leverage, speculative froth, and overbought conditions, thereby positioning the market for more sustainable upside once sentiment stabilises and buy-on-dip interest returns. “Near-term caution is warranted due to dollar strength and volatility, but medium-to-long-term forecasts stay firmly bullish,” Ponmudi said.Domestic brokerage Motilal Oswal said gold now appears relatively better placed as macro uncertainty rises. While it maintained a positive stance on silver’s longer-term structural outlook, supported by industrial demand and supply constraints, the brokerage cautioned that the near-term setup looks increasingly imbalanced after the recent rally.
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What should investors do on February 1?
The Multi Commodity Exchange of India (MCX) will remain open for trading on Sunday, February 1, in a special session as the government presents the Union Budget 2026. The exchange will conduct a live trading session as per standard market timings.
On January 30, domestic gold mirrored the global selloff, retreating from highs near Rs 1,80,000+ to stabilise around Rs 1,49,500 to Rs 1,49,653, reflecting a similar percentage decline. The contract is trading near the 20-day EMA, while the long-term upward channel remains intact. Key support lies in the Rs 1,40,000 to Rs 1,45,000 zone, bolstered by the firm USD/INR backdrop. Holding above Rs 1,40,000 preserves the positive medium-term bias, while a sustained rebound above Rs 1,55,000 could reignite momentum toward Rs 1,65,000 to Rs 1,80,000+ in the coming months, supported by domestic tailwinds and structural demand.
Despite the sharp decline, gold remains on track for a more than 13% rise this month, marking its sixth consecutive monthly increase.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)