After a major correction on Friday, gold and silver are dipping again.
As I write, silver is trading at around $81/oz and gold at $4,708. Both are still trading above their Friday lows, which is noteworthy.
And to keep things in perspective, silver is now trading at levels first reached on... January 9th, 2026. And gold is trading at levels last seen on... January 20th, 2026.
Clearly, the bull market was overheated in the short-term. Especially silver.
But the long-term fundamentals remain rock-solid. The world continues to inch towards widespread debt and currency crises.
And owning gold and silver will be critical for wealth preservation going forward.
Paradigm's resident precious metals expert Jim Rickards put out an excellent overview of what happened (and what comes next) this morning. Today, let's dig into Jim's commentary and add color.
In terms of causes and catalysts, Jim breaks it down cleanly:
The immediate reason given for the gold and silver crash on Friday was Trump's appointment of Kevin Warsh to be the new head of the Federal Reserve. The markets viewed Warsh as a hawk who would keep interest rates high, make the dollar stronger, and fight inflation. That description may be true, but high interest rates and a strong dollar make recession more, not less, likely. A recession will emphasize the safe-haven nature of gold and silver again.
Still, Warsh was more of a catalyst than a cause. The real reasons for the gold and silver price plunge had to do with hedge fund traders taking profits, automated momentum trading, stop loss algorithms, trend following, and some panic. Let's look at those causes closely.
Taking Profits. Hedge fund traders don't really care about gold as money. For them, it's just another commodity like coffee, soybeans or lumber. They trade it on a leveraged basis using futures or over-the-counter derivatives. Hedge fund traders get bonuses based on their gains, but only the gains that are booked. They generally do not get paid for mark-to-market profits unless the trades are closed out and the money is in the bank.
Imagine a hedge fund trader who bought gold on December 31, 2025, at $4,340 per ounce using five-to-one leverage. With gold at $5,355 on January 29, the unleveraged profit was 23%, but the leveraged profit was 117%! Time to cash out and take your money off the table. Of course, the trader can go back into the gold market whenever he wants, but profits of over 100% in one month are too good not to cash out.
Next comes the automation. Once some traders start to cash out and the price starts to go down, computers tell others to do the same. They follow suit and the price goes down more. At that point, the stop-loss algos kick in. Traders pre-set a maximum loss, and when that threshold is hit, the computers automatically close out their position. That drives prices even lower.
Short-term traders like hedge funds and algorithmic traders were responsible for the tail end of the vertical move up, and the inevitable correction.
This is a typical part of any strong bull market move. We take 2 steps forward, then 1 step back. Rinse and repeat.
This process washes out the weak hands and short-term traders and gives long-term bulls a chance to buy the dip.
Jim goes on to list a number of reasons why this bull market isn't close to done. Let's go over one key bullet point.
Russia has demonstrated that it can survive Western dollar-based financial sanctions by holding over 25% of its reserves in physical gold. That's a lesson the world (and especially the BRICS) is internalizing.
This is what truly kicked the bull market into high gear. And it's something Jim predicted back in April of 2022, just after Russia invaded Ukraine in The Stars Are Aligning for Gold:
The second reason to own gold is the unprecedented economic war between the U.S. and Russia that's raging side by side with the shooting war in Ukraine. Economic results always receive some consideration in times of war, but there has never been a war where the economic costs of sanctions are greater and more long lasting than the destruction caused by the actual fighting.
One of these costs is a loss of confidence in the U.S. dollar.
It was fully expected that the U.S. would impose sanctions on certain Russian industries, exports and its oligarchs. It was not expected that the U.S. would seize and freeze the reserve assets held by the Central Bank of Russia.
Now that that has happened, every central bank in the world is reevaluating its dollar-denominated reserves and asking itself if the U.S. will freeze those holdings in some future dispute.
...In the meantime, gold is available to central banks and has proven to be an excellent store of value over centuries, even millennia. Central banks have been net buyers of gold since 2010. Now the tempo has increased in order to shield reserves from dollar seizures.
Back when Jim wrote that piece in April of 2022, gold was trading around $1,941.
Jim closed his update to subscribers this morning with a powerful message:
On days like last Friday, the weak hands get flushed out, the strong hands buy the dip, and the fundamentals come back into play. We are still in the early stages of a historic gold and silver price rally. What happened last Friday was a speed bump, not the end of the road.
Other material developments in the gold markets are occurring almost daily. We expect this to continue.
Don't panic. If you have not invested in gold yet, or if your allocation is small, it's not too late to invest. The drawdown last Friday offers a better entry point today. The biggest gains are still ahead and will happen sooner than later. The time to invest is now.
Well said. Subscribers to Strategic Intelligence can read the full writeup from Jim here.
The only thing I would add is that during the 1970s bull market, gold rose from $35 to $850. But it wasn't a smooth ride. There were three 30%+ selloffs.
By 1975, gold had risen from $35 per ounce to $200. It then crashed about 47% to $105. A jarring drop, no doubt. Many investors assumed the bull market was over.
But anyone who sold in '75 and didn't get back in missed the move to $850. We covered that story back in September of last year, but it's worth repeating. Especially for new readers.
So there will be corrections along the way. And this one may not be over yet.
But this precious metals bull market isn't close to done yet.
The Daily Reckoning