Precious Metals Get Hammered as Dollar Surge Dominates Year-End Trading

Gold and silver took a beating on Wednesday with February COMEX gold plunging 1.03% and March COMEX silver nosediving 9.39%. The crash wasn’t random—multiple factors conspired to sink bullion prices to recent lows (gold hit a 2.5-week bottom, silver fell to a 1-week low).

What Triggered the Metal Meltdown?

The primary culprit was a margin hike announced by CME on precious metals—the second increase this week. When margins jump, traders must post more cash to maintain positions, forcing liquidation waves that cascade downward. Add to that the dollar index’s surge to a 1-week high (+0.07%), and you’ve got the recipe for a metals massacre.

Higher US Treasury yields acted as the third knife: they make non-yielding gold and silver less attractive relative to bond returns. The yield surge came from an unexpected drop in US weekly unemployment claims, which fell to a 1-month low of 199,000 (markets expected a rise to 218,000). Normally this signals a hawkish Fed stance, supporting dollar strength.

Why the Dollar Got a Boost

The dollar’s strength had multiple drivers beyond labor market data. Stock market weakness on Wednesday triggered flight-to-safety demand for the greenback. However, underlying dollar headwinds persist: expectations for Fed rate cuts (roughly -50 bp in 2026), anticipating a dovish new Fed Chair appointment under Trump administration influence, are weighing on long-term dollar prospects. The administration’s focus on potential Fed Chair changes (with Kevin Hassett rumored as the most dovish frontrunner) introduces policy uncertainty.

USD/JPY climbed 0.21% as the yen weakened to a 1-week low, though trading remained subdued with Japan’s markets closed for a bank holiday. EUR/USD dipped 0.03% as the dollar maintained upper hand, while German markets shuttered for New Year’s holidays kept euro trading thin.

The Silver Lining for Metal Bulls

Despite Wednesday’s carnage, structural support remains intact. Central banks continue accumulating gold aggressively—China’s PBOC added 30,000 ounces in November alone (now at 74.1 million troy ounces), marking the thirteenth consecutive month of reserve increases. Global central banks collectively purchased 220 MT of gold in Q3, up 28% from Q2.

Fund positioning also buttresses the metals complex: gold ETF long holdings climbed to a 3.25-year high Tuesday, while silver ETF longs hit a 3.5-year high. The Fed’s $40 billion monthly T-bill purchasing program (launched mid-December) injects liquidity into the financial system, creating underlying support for alternative assets.

Geopolitical risks—Ukraine, Middle East tensions, Venezuela uncertainties—plus growing concerns about Trump administration tariffs keep safe-haven demand alive for precious metals. As Fed policy tilts toward easing and uncertainty lingers over leadership appointments, metals may find their footing despite short-term volatility.