WE Think: How should we view the sharp rises and falls in gold and silver prices? Is the new Fed chair hawkish or dovish?

At the start of 2026, global politics, economics, geopolitics, commodities, and capital markets have experienced dramatic fluctuations, with many events being unprecedented. The longstanding “January prediction” in capital markets holds that the performance in January each year carries significant implications for the entire year.

This month, commodities have been the focus of intense attention, particularly the dramatic surges and plunges in nonferrous metals. Prices of silver, gold, copper, aluminum, and lithium have continued to rise strongly, reaching their highest points on January 29, with gains of 69.95%, 29.65%, 16.25%, 11.9%, and 55.43% respectively. However, in the early hours of January 31, Beijing time, the main silver futures contract on the New York exchange plunged 35% during trading, while spot silver prices plummeted by as much as 35.5%, marking the largest intraday drop in history. Gold also suffered a sharp decline, falling more than 12.7% during the day and closing down 9.25%. In contrast, Chinese stock markets outperformed those in Europe and the U.S.: the Wind All A Index, the CSI 300, the Hang Seng Tech Index, the Nasdaq, and the UK FTSE 100 rose by 5.83%, 1.65%, 3.67%, 0.95%, and 2.94% respectively—showing robust performance even amid significant reductions in ETF holdings by mysterious capital flows in A-shares.

This month’s WE Think will explore the following topics: the impact of last month’s new developments in international relations on Chinese assets, how to view the sharp rises and falls in non-ferrous metal prices, and whether the new Chairman of the Federal Reserve is actually hawkish or dovish.

A Century of Great Transformation—China and the U.S. Exchanging Friendship Networks Helps Enhance the Attractiveness of Chinese Assets.

Geopolitical fragmentation is boosting the structural appeal of Chinese assets, as Western cohesion weakens and RMB appreciation expectations rise.

U.S. actions on Venezuela and Greenland have strained transatlantic unity, highlighting a strategic drift among traditional allies—a shift echoed in Canadian Prime Minister Mark Carney’s Davos remarks.

In contrast, China has hosted high-level visits from leaders of South Korea, Canada, the UK, and Finland, including the UK Prime Minister’s first trip in eight years. Even Trump’s threats have failed to halt this momentum—his own planned April visit underscores its inevitability.

Meanwhile, the "Peace Commission" initiated by Trump lists 24 participating countries—predominantly from the Middle East and North Africa. Notably, none of the UN Security Council’s permanent members or traditional U.S. Western allies have joined. This reveals an emerging structure: American leadership, Gulf financing, and symbolic support from marginal states.

Financial trends corroborate the shift: European institutions have begun reducing U.S. Treasury holdings, while rising capital inflow sentiment strengthens the case for RMB appreciation.

These forces are aligning to make Chinese financial assets a more compelling destination for global capital.

How should we view the sharp rises and falls in gold and silver prices?

This round of sharp price swings in nonferrous metals has been widely attributed by the market to the hawkish stance of the newly appointed Federal Reserve Chairman, Kevin Warsh. After an excessively rapid rise at the beginning of the year, a correction was inevitable—but such a dramatic one-day plunge is extremely rare. It’s worth drawing parallels with the “Black Monday” stock market crash of 1987, when programmatic trading and portfolio insurance strategies triggered a massive sell-off. This time, silver prices plummeted from a high of $118.45 to $74, a drop of 37.53%. Several factors converged to fuel this extreme volatility: after an accelerated rally, profit-taking positions remained unabsorbed; leveraged ETF products engaged in rebalancing—adding positions when prices rose and reducing them when prices fell; the scale of programmatic CTA trading strategies grew too large, leading to a sudden drop in liquidity that amplified market fluctuations. The widespread adoption of mobile internet and the popularity of ETF instruments have made bubble-like rallies and stampede-like crashes even more likely. The 2015 A-share market crash, the 2020 U.S. stock market circuit breakers, and now this silver plunge—all share similar underlying mechanisms. While stock markets have daily limit-down and circuit-breaker mechanisms, commodities and futures lack such restrictions on price movements, making it possible for single-day declines to exceed 30%.

Although Chinese regulators find it difficult to restrict overseas leveraged ETFs, they should nonetheless assess the impact of similar strategy products on the market. During periods of rising net asset values, these products attract additional capital, creating a “pass-the-parcel” effect—when the music stops, a stampede is inevitable. The A-share market in 2015, the U.S. stock market in 1987, and the silver market in 2026 all serve as cautionary tales. In 2025, quantitative products have actively embraced small-cap factors, with both performance and scale soaring. If the market share of investment strategies that proactively adapt to this trend are not assessed in a timely manner, the likelihood of a future stampede will be extremely high.

Nonferrous metals can be categorized into two types: gold and industrial metals. When the prices of industrial metals rise too high, demand is inevitably restrained. Over the long term, persistently high prices and high profits will encourage companies to expand production, eventually leading to a new equilibrium between supply and demand. When investing in cyclical industries, it’s crucial to keep in mind the patterns of these cycles.

Gold, by contrast, has a very low proportion of industrial use and is primarily used as a currency and a store of wealth. Amid geopolitical shifts, sovereign nations are shifting their wealth allocations from foreign-currency bonds to gold. If the global high-net-worth population were to allocate 5% to 10% of their assets to gold, the supply-and-demand dynamics would undergo significant changes. The recent decline in gold prices is more likely a correction within a longer-term upward trend; the gold bull market is far from over.

Has the nomination of the Fed’s new leader triggered a collapse in asset prices, including gold, silver, and crypto currencies? Is Kevin Warsh truly hawkish or dovish?

Trump nominated Kevin Warsh as the new Fed chair, and gold, silver, and crypto currencies immediately plunged. Bitcoin fell below $80,000, while Ethereum and Solana both dropped by more than 10%. The crypto market wiped out $111 billion in just 24 hours, leaving over 400,000 investors liquidated. Market analysts interpret Warsh as hawkish, and the sharp drop in asset prices is linked to this stance.

Warsh is not an academic economist; he has served as an executive at Morgan Stanley, a special assistant to the White House on economic policy, and the youngest-ever member of the Federal Reserve Board. During the 2008 financial crisis, he acted as the primary liaison between Chairman Bernanke and Wall Street, opposing the second round of quantitative easing and leaving behind a hawkish impression. Objectively speaking, in hindsight his view was mistaken—Bernanke was right to persist with further rounds of quantitative easing. On May 30, 2025, Kevin Warsh, then a scholar and policy commentator, delivered a speech at the Reagan National Economic Forum, emphasizing that the Fed’s oversized balance sheet was the primary driver of inflation and advocating for balance-sheet reduction combined with interest-rate cuts. Whether his views will become part of official policy remains to be seen. The Fed’s policies have limited impact on market interest rates; personally, I tend to believe that interest rates ultimately are shaped by market transactions—determined by economic fundamentals, expectations, and the supply-and-demand dynamics of market funds. The Fed’s balance-sheet expansion and the Bank of Japan’s holdings of Japanese government bonds are fundamentally similar: both work by boosting demand for government bonds to drive down interest rates. If the Fed were to sharply reduce its balance sheet, it could severely disrupt U.S. capital markets—a factor behind the recent sharp declines in gold, silver, and crypto assets.

Warsh’s past remarks have tended to be hawkish, though most of these comments were made when he was in the opposition. It remains to be seen whether he will stick to that stance once he takes the helm. It would be more accurate to characterize Warsh as either “obedient” or “independent.” In the short term, he’s likely to lean toward being “obedient,” with a primary focus on maintaining economic and capital-market stability during the 2026 midterm election year. The president is confident in his loose monetary policy, and his subsequent actions and statements will be worth watching closely.

Recent Stock Market Investment Strategy:

In January, thematic speculation and market manipulation in A-shares became overheated. Regulators stepped up their crackdown efforts to cool down the market in a timely manner. Thematic speculation targeting small- and mid-cap stocks is driven by “regulatory cycles”—when regulatory tolerance increases, it marks the golden period for thematic speculation; but when illegal and criminal activities are severely cracked down upon, the market’s investment style shifts toward value and growth investing.

With current regulatory tightening and cooling market sentiment, we believe this is necessary and will help the market develop in a healthy manner. We continue to see that the overall market still exhibits characteristics of a “slow bull” trend.

Investment Strategy: We recommend patiently holding high-quality companies with reasonable valuations and sharing in the steady, long-term growth benefits of Chinese assets.

Wu Weizhi

1 February 2026

本期《偉志思考》簡體中文版鏈接：

伟志思考：如何看待黄金白银价格的暴涨与暴跌？新联储主席是鹰派还是鸽派？