Silver Plunges 10%, Gold Tests $4,900: Is the Bull Market Over Ahead of CPI?

TradingKey - Ahead of the release of the U.S. January CPI report, financial markets experienced a sudden broad sell-off on Thursday: along with a sharp drop in U.S. stocks, gold (XAUUSD) and other commodity prices also fell significantly.

On Thursday, gold fell nearly $200 in 30 minutes, a drop of nearly 4%, breaking below the key price of $4,900; silver (XAGUSD) dived over 10% intraday, recording one of its largest single-day declines since 2026.

Analysis suggests that the decline in gold and silver prices may have been driven by the dual blow of a crash in U.S. stocks and unexpectedly strong non-farm payroll data.

Double Bearish Factors for Gold: Strong Employment and a U.S. Stock Market Crash

Non-farm payroll data released Wednesday showed that U.S. job growth in January was stronger than expected, reaching 130,000—the largest monthly increase in over a year—while the unemployment rate dropped to 4.3%. Given this data, the market expects the Federal Reserve to delay interest rate cuts.

The Wall Street Journal suggests this could reinforce the Federal Reserve's wait-and-see approach. This is because officials favoring rate cuts can no longer use "labor market weakness" as a justification, while those worried that cuts might exacerbate inflation have grounds to argue that the labor market has stabilized after last year's three consecutive cuts, making further reductions unnecessary.

This implies that the market expects a high-interest-rate environment to persist, creating a bearish outlook for gold, a non-yielding asset. Furthermore, higher rates tend to bolster the U.S. dollar, increasing the cost of dollar-denominated gold. Additionally, robust employment data signals labor market stability, significantly reducing short-term recession risks and diminishing gold's appeal as a safe-haven asset.

However, some analysts believe the flash crash in gold may be more directly linked to the simultaneous decline in the U.S. stock market.

Bloomberg MLIV macro strategist Michael Ball stated that the sudden sell-off in metals, driven by the spread of risk-off sentiment in U.S. stocks triggered by AI concerns on Thursday, appeared to be dominated by algorithmic trading. He explained that the cliff-like drop across precious metals resembled systematic strategy unwinding—a common de-risking maneuver by CTAs (Commodity Trading Advisors) once key price levels are breached. In short, when gold or silver prices hit a certain threshold, it automatically triggers CTA selling programs.

Fawad Razaqzada, market analyst at City Index and FOREX.com, explained the reason for gold's plunge near $5,000: given the heightened volatility in gold and silver recently, many investors likely set stop-loss orders below $5,000 or above $5,100. As gold prices dropped, these stop-loss orders were triggered, sparking a chain reaction that led to a massive price decline in a short period.

The reason a U.S. stock market crash would drag gold and silver down is not only due to spreading risk-off sentiment but also relates to a liquidity crunch. Nicky Shiels of Swiss precious metals giant MKS PAMP SA noted that during periods of extreme market stress, even safe-haven assets like gold are sold off by investors in desperate need of liquidity.

CPI Approaches: Will Gold’s Epic Crash Repeat?

Despite Thursday's plunge, Razaqzada does not believe gold is entering a sustained downward cycle, as the market has absorbed significant downside liquidity; the next move will depend on how prices perform at key technical levels. In the short term, however, the likelihood of heightened volatility has increased.

Most major Wall Street banks still expect gold to resume its upward trend, as core drivers remain in place, including geopolitical conflicts, questions regarding the Fed's independence, central bank gold purchases, and the shifting trends toward de-dollarization and de-sovereignization. JPMorgan Chase (JPM) expects gold prices to reach $6,000-$6,300 per ounce by the end of the year.

Regarding the impact of this CPI reading, analysts believe that if inflation is significantly higher than expected—for instance, if core CPI rises more than 0.4% month-on-month or 2.5% year-on-year—it will further delay the Fed's rate-cutting timeline. In that scenario, concerns that rate cuts would exacerbate inflation will remain dominant, giving hawks the upper hand. This would be bearish for gold. Conversely, if inflation falls to the other extreme and is significantly lower than expected, particularly with a decline in housing inflation, it would provide policy space for the dovish argument for "preemptive rate cuts" to support labor market recovery, which would be bullish for gold.