Are gold and silver bubbles cracking after $7 trillion wipeout? What investors should do now

After gold and silver crashed, eroding $7 trillion in value from precious metals last week following a fast and furious rally over the past few months, leading global banks and analysts say that the bullion bull market remains intact as the recent correction could be merely a violent reset before the next leg takes prices higher.

"The dramatic fall in gold prices has the hallmarks of a 'leverage-driven break' rather than a collapse in underlying demand," predicts Nigel Green, CEO of deVere Group, one of the world's largest independent financial advisory organisations.

"Gold rose too far, too quickly into record territory, and the structure of that rise left it exposed once prices started to slip," Green explains. "At the peak, large parts of the gold market were held by traders using borrowed money. Futures contracts, options, and leveraged ETFs all expanded rapidly as prices surged above $5,000 an ounce. Those positions only function smoothly while prices move higher or sideways. Once prices began falling, the mechanics turned hostile."


The mechanics became particularly hostile on January 30 when the CME announced margin hikes on precious metal futures from Tuesday. "The increase in margin requirements makes holding speculative positions less appealing now and this will also force a lot on the retail side of the market who do not have the extra liquidity to sell positions," said Zain Vawda, analyst at MarketPulse by OANDA. "It is definitely creating a sort of feedback loop where as prices drop, more traders will face margin calls leading to more selling and even lower prices."

The Warsh factor: Policy shift or market overreaction?

The trigger for the unraveling came when President Donald Trump named former Federal Reserve Governor Kevin Warsh as his Fed chair pick. The dollar index edged higher as markets interpreted Warsh, widely viewed as an advocate for strict monetary policy, restrained growth of the Federal Reserve's balance sheet, and institutional reform, as hawkish. While investors expect Warsh to favour rate cuts, they anticipate he will tighten the Fed's balance sheet, a move typically supportive of the dollar and negative for dollar-priced bullion.

Yet UBS challenges the notion that Warsh's appointment signals the end of gold's bull market. “Gold bull markets typically don't conclude simply because fears diminish or prices become too high—they end when central banks establish their credibility and pivot to a new monetary policy regime," UBS stated. "Since Warsh hasn't demonstrated the same credibility as Volcker, we don't believe this is the end of gold's bull market."

"Throughout past price cycles—the 1970s, the 2000s, and after 2020—the gold price tended to increase whenever investors doubted Fed policymakers' ability to maintain the dollar's real value. Prices fell back when trust was partially regained, but bull cycles only ended once full confidence returned."

Mid-to-late stage bull market in gold?

So where are we in this cycle? UBS's analysis indicates that "gold is currently in the mid-to-late stage of its present bull market, moving from a consistent upward trajectory to one reaching new peaks but with intermittent drawdowns of 5-8%. Importantly, the typical factors historically associated with the conclusion of gold's bull market—sustained elevated real interest rates, a structurally stronger US dollar, improved geopolitical conditions, and fully re-established central bank credibility—have not yet materialised, in our view."

The bank added: "The initial market response to Kevin Warsh's nomination has generally been viewed as hawkish, particularly regarding his approach to the Fed's balance sheet. This sentiment has manifested in lower gold and bitcoin prices, alongside a modest appreciation of the USD. However, Warsh's historical record and evolving policy perspectives suggest a more complex outlook. As such, we believe a significant shift away from accommodative monetary policy—such as a Volcker-style tightening—is unlikely."

Green from deVere outlines why the current phase should prove self-limiting: "Once leverage is flushed out, selling pressure eases naturally. Traders who were forced sellers are no longer present, daily price swings narrow, and liquidity improves. Prices stop falling not because sentiment improves, but because the mechanical pressure ends."

He identifies three key reasons why gold declines should stabilise:

First, physical demand returns at lower prices. "Physical demand from Asia historically increases after sharp pullbacks, especially once prices move away from recent extremes. Buyers who stepped back during the rally re-enter once volatility cools."

Second, central bank behaviour supports floors. "They rarely chase rallies, but they do add on weakness. A correction from record highs into more stable ranges aligns better with reserve management behaviour."

Third, institutional hedging demand resumes. "Institutions that paused allocations during extreme volatility tend to resume once daily moves become more orderly. None of that happens at the peak; it happens after damage is done."

Technical view: Consolidation, not reversal

Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities, takes a price-action approach that reinforces the non-bubble thesis.

"Gold has witnessed sharp volatility in recent weeks, with narratives quickly emerging to explain the pullback. One camp attributes the move to the appointment of a hawkish new Fed Chair, reviving fears of tighter monetary conditions for longer. Another line of commentary points to profit booking after a strong multi-month rally. These explanations may sound convincing, but markets ultimately respond to price, not stories," Sheth observed.

"From a price action perspective, the larger trend in gold remains clearly intact. The long-term structure continues to show higher highs and higher lows, and the recent decline looks more like a pause within an ongoing uptrend rather than the start of a reversal. Importantly, prior breakout zones are holding, suggesting that strong hands are still willing to accumulate on dips."

Sheth anticipates consolidation rather than collapse: "Gold may spend the next few months moving within a broad range, capped near 180779 and supported around 136185, 132294. Such ranges are common after sharp advances, allowing excess optimism to cool off and positioning to reset, without damaging the underlying trend."

What should investors do now?

UBS frames the correction as "indicative of volatility within a continuing structural uptrend, rather than suggesting the end of the bull market. Barring a sustained increase in projected real yields, greater political stability, improved fiscal conditions, and definitive evidence that US dollar diversification has reached its zenith—all of which we believe are unlikely—the gold price will resume its uptrend, in our view."

The bank maintains gold as "attractive" and remains long in its global asset allocation, viewing it "not as a momentum-driven asset, but rather as a strategic long-term hedge within an investment portfolio. We believe a mid-single-digit portfolio allocation is optimal for those with an affinity for gold."

UBS anticipates near-term consolidation at $4,500-4,800 per ounce "until fundamentals start to play a larger role again," having recently raised its demand forecasts for 2026 "reflecting expectations for robust central bank purchases, increased ETF inflows, and greater demand for bars and coins, all spurred by lower US real interest rates and persistent geopolitical uncertainty."

Barclays echoed this constructive view, saying in a note Monday it expects "rate cuts, fiscal expansion, quantitative easing, fiat debasement and de-dollarisation to likely keep investment demand firm for gold."

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The silver exception: Still too early

On silver, UBS strikes a more cautious note: "Given these considerations, we believe it is too early to build long-term exposure to silver. While we maintain our forecasts, we think investors should carefully consider the return required for an asset that has recently exhibited 60-120% volatility. Prudent return expectations suggest that forward-looking returns should be around 0.5 times or higher compared to the underlying volatility. Applying this framework, we believe a further pullback is needed before turning constructive on the metal from a risk-reward perspective."

The verdict from Wall Street's heavyweight analysts is clear: this isn't a bubble bursting but a leverage purge within a structural bull market. The pain is real, the volatility extreme, and the $7 trillion wipeout unprecedented in speed and scale. But the underlying drivers, monetary accommodation, fiscal expansion, geopolitical uncertainty, and dollar diversification, remain firmly in place. For investors with strong stomachs and long time horizons, this washout may prove less an ending than an opportunity.