Gold and silver prices fell further on Monday as the impending increases in CME precious metals margin requirements, set to take effect at the session close, weighed on the market, while investors also focused on the potential interest rate stance of Kevin Warsh, US President Donald Trump’s pick for Fed chair.
The gold contract on COMEX dropped 3.6% to trade around $4,577.24 per ounce.
Last week, the contract had hit a record high of above $5,600 per ounce.
On the other hand, silver prices on COMEX plunged more than 38% from their record high of $120 per ounce to $75 an ounce on Monday.
CME Group announced on Saturday that it is hiking margins on its metal futures, with the changes taking effect after market close on Monday.
COMEX gold futures margins (1oz) will be raised from 6% to 8%.
COMEX 5000 silver futures (SI) are set to increase to 15% from 11%.
Additionally, platinum and palladium futures will also see increases in margin requirements.
Higher margin requirements typically have a negative impact on the contracts they affect.
This is because the increased capital required can reduce speculative interest and liquidity, often forcing traders to close out their existing positions.
Headwinds from new Fed chair selection
Gold continues to face bearish pressures, despite a slight recovery from a three-week low of $4,585 per ounce.
This is due to persistent buying interest in the dollar, which has stalled any significant recovery for the yellow metal, according to Dhwani Mehta, analyst at FXStreet.
Gold, the traditional safe-haven asset, continues to struggle due to two key developments: easing geopolitical tensions between the US and Iran, which has calmed markets, and Trump’s nomination of Kevin Warsh as the next Federal Reserve Chairman on Friday.
Mehta said in a report:
Meanwhile, markets view Warsh as a proponent of lower interest rates.
They anticipate him to curb the Fed’s balance sheet, which typically supports the dollar by diminishing the money supply in the market, according to Reuters.
Warsh appears to be a strong candidate for Trump’s Federal Reserve Chair, meeting many of the criteria.
However, uncertainty remains regarding the speed and depth of potential interest rate cuts he might implement, as well as the extent of his intended “regime change” at the Fed.
Market expectations still point to a minimum of two rate cuts in 2026, the CME FedWatch tool showed.
This outlook is generally favorable for non-yielding assets like bullion, which typically perform better when interest rates are lower.
Geopolitics and economic data
Geopolitical developments, particularly between the US and Iran, along with the forthcoming US economic data—specifically the crucial US ISM Manufacturing PMI—will be the key focus in the near term.
This ISM report is expected to establish the market’s direction, leading up to the release of this week’s vital employment statistics.
“The data flow will help reprice markets’ expectations of further rate cuts by the Fed, with the first cut for this year likely seen in June following the January Fed policy announcements,” Mehta said.
Meanwhile, the US will “hopefully” reach a deal with Iran, according to Trump, who commented over the weekend following a warning from Supreme Leader Ayatollah Ali Khamenei that a Washington attack could lead to a regional conflict.
The easing of tensions between the US and Iran eroded the safe-haven demand for precious metals such as gold and silver somewhat.
Technical outlook
The prevailing uptrend is currently paused, as the gold price is trading below the 21-day Simple Moving Average (SMA) but remains above the 50-day SMA.
This underlying bullish momentum is supported by the SMAs being in a favorable alignment: the 21-day is positioned above the 50, 100, and 200-day averages, with all slopes indicating upward movement, according to Mehta.
Rising longer-term SMAs above the 100 and 200-day levels reinforce the bullish bias, indicating the trend remains well-supported by higher-timeframe averages, she added.
Silver is currently trading at $76.60 on the daily chart. The metal’s price is below the ascending 50-day Exponential Moving Average (EMA), positioned at $79.50.
Momentum has moderated, as indicated by the Relative Strength Index (RSI) at a neutral 44, following a recent overbought condition.
Sustaining above the 50-day EMA is key to maintaining buying interest, whereas a daily close below this moving average would signal potential downside risk, according to a FXStreet report.
“If momentum stabilizes, bulls could attempt to extend the recovery, while failure to re-accelerate would keep trade contained,” Sagar Dua, editor at FXStreet, said in a report.
Meanwhile, Commerzbank AG’s head of FX and commodity research, Thu Lan Nguyen, believes that Trump would want lower interest rates, as it was his stance from the very first day.
This would, in turn, lead him to put pressure on the new Fed Chair, and therefore, there are probabilities that interest rates will still come down, Nguyen said.
This suggests that the gold price will remain well supported.
The extent of the correction also suggests that market participants were simply waiting for an opportunity to take profits after the rapid price rise.
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