Precious metals plummet with the retreat of silver: market factor analysis and technical outlook

Gold Crash Today Amid Profit-Taking and Short Positions

On Thursday morning during U.S. trading sessions, precious metals markets experienced a sharp decline. Silver suffered the most significant drop, mainly due to speculative selling by short-term traders and the liquidation of weak long positions. The gold crash today reflects a bearish technical setup in the silver market, fueling panic among bullish investors across both segments. According to established trading principles, a mature bull market requires a continuous influx of positive catalysts to stay supported. Currently, the fundamental data for these two metals seem lacking such supporting factors.

February gold futures were quoted at $4,431.70 per ounce, down $30.8 from previous sessions. March delivery silver fell by $3.783, closing at $73.83 per ounce. These movements represent a significant correction ahead of the annual rebalancing of commodity indices.

Index Rebalancing and Massive Sales Incoming

Traders and investors are already preparing for the annual index rebalancing, which could trigger waves of futures contract sales worth tens of billions of dollars in the coming days. According to Citigroup estimates, approximately $6.8 billion of silver futures could be liquidated to meet rebalancing requirements, with capital outflows of a comparable size from the gold sector as well. Bloomberg attributes these sales to the notable increase in the weighting assigned to precious metals within benchmark commodity indices, creating technical pressure independent of economic fundamentals.

U.S. Labor Market Sends Mixed Signals

U.S. employment data showed a bifurcated dynamic affecting overall market sentiment. In December, the number of announced layoffs hit the lowest since July 2024, with 35,553 positions cut by U.S. employers, down from 71,321 in November. Andy Challenger of Challenger, Gray & Christmas commented: “2024 closes with the lowest annual layoff plan. Although December is traditionally a quiet season for layoffs, combined with still-robust hiring plans, this is an encouraging sign after a year marked by numerous layoffs.”

However, looking at the overall scenario, in 2024, employers announced a total of 1,206,374 layoffs, a 58% increase compared to 2023, reaching the highest level since 2020. The government sector leads this ranking with 308,167 layoffs mainly at the federal level, while the private sector's tech industry stands out with 154,445 cuts. Challenger highlighted: “The tech sector is at the forefront of AI implementation. Coupled with over-recruitment in the previous decade, this has generated a wave of unemployment in the sector.” Meanwhile, planned new hires have contracted by 34% compared to the previous year, totaling 507,647, the lowest since 2010.

Tariffs and Regulatory Uncertainty Weigh on Markets

The U.S. Supreme Court may rule shortly on the legality of President Trump’s tariff strategy. Reports indicate that the Court is evaluating whether Trump can invoke the 1977 International Emergency Economic Powers Act, a never-before-used emergency law, to impose tariffs on imports. Lower courts have already established that using this law to support large-scale “reciprocal” tariffs against trading partners, as well as specific tariffs on China, Canada, and Mexico, exceeded presidential powers.

If the Supreme Court rules these tariffs illegitimate, most tariffs imposed by Trump during his second term would be repealed, and the U.S. government could be forced to reimburse tens of billions of dollars. However, the tariff strategy has alternative pathways for continuation. Although the Constitution grants Congress the authority to impose taxes and tariffs, legislators have delegated significant portions of this power to the executive through various laws. These laws provide Trump with at least five different options to implement tariff measures, though alternatives involve greater procedural restrictions, limiting the president’s ability to impose tariffs immediately or set high rates at discretion.

Expansion of Defense Spending and Impact on Defense Contractors

Trump announced plans to increase U.S. defense spending by $500 billion, bringing total to $1.5 trillion. He also threatened to exclude some companies that could benefit from this expansion. Through an executive order, Trump imposed a freeze on share repurchases and dividend payments for major defense contractors, setting a maximum of $5 million annually for executive compensation until these companies increase investments in plant expansion and R&D.

This move exerted downward pressure on the stock prices of leading defense contractors, including Raytheon Technologies, Northrop Grumman, Lockheed Martin, and General Dynamics. Trump stated via social media: “This will allow us to build the army we’ve long deserved and, even more importantly, ensure our security against any external threat.”

U.S. Oil Strategy on Venezuela Reshapes Energy Flows

Following the Trump administration’s announcement of plans to control up to 50 million barrels of Venezuelan oil—one of the most significant unexpected shifts in recent supply—U.S. crude traders and refineries are rapidly repositioning to secure Venezuelan oil supplies. Trump disclosed this strategy via social media Tuesday night, while Energy Secretary Chris Wright provided further details Wednesday.

This initiative reflects direct federal government involvement in the international oil market, with the potential to reactivate Venezuelan crude flows to U.S. refineries after years of sanctions. The return of Venezuelan oil to U.S. customers could be one of the most significant changes in the global energy landscape in recent years. The announcement has already caused a sharp drop in Canadian oil prices and exerted downward pressure on benchmark crude futures.

Venezuela holds the world’s largest proven oil reserves, but decades of underinvestment, sanctions, and economic isolation have reduced production below one million barrels per day. Trump stated that the U.S. will take control of Venezuela’s oil infrastructure and extract resources in the coming years, saying: “We will rebuild Venezuela’s oil industry in an extremely profitable way.”

While major U.S. oil companies are planning meetings with Trump at the White House in the coming days, Bloomberg notes that without explicit political and legal guarantees, many drilling companies may remain cautious about re-entering or expanding in the Venezuelan market.

External Financial Markets and Technical Outlook

During today’s session, the dollar index appreciated slightly; oil prices advanced, trading around $57.00 per barrel; the 10-year U.S. Treasury yield is currently at 4.16%.

Regarding technical analysis of February gold futures, the next upside target is set above the crucial resistance at the all-time high of $4,584.00 per ounce. The short-term downside target for sellers is to push the futures price below the key technical support of $4,284.30 per ounce. The first resistance is at the previous night’s session high of $4,475.20, followed by the $4,500.00 level, while the first support is at $4,400.00, followed by the weekly low of $4,354.60.

For March silver futures, this week’s movement has raised concerns about forming a bearish double-top technical pattern. The next bullish target for buyers is a close above the key technical resistance at the all-time high of $82.67 per ounce. The bearish target for sellers is a close below the critical support coinciding with last week’s low of $69.225 per ounce. The first resistance is at $75.00, followed by $76.00, while the next support is at $74.00, followed by $72.50.

Methodological note: the gold market mainly operates through two price formation mechanisms. The first is the spot segment, where the price reflects immediate purchase and delivery; the second is the futures sector, where the price is determined for future deliveries. Due to end-of-year position adjustments and market liquidity dynamics, December gold futures remain the most active contract on the Chicago Mercantile Exchange (CME).