Pulling the rug out from under the “debasement trade.”
By Wolf Richter for WOLF STREET.
Different markets reacted differently to President Trump’s nomination of Kevin Warsh for Fed Chair. And most of them were well-behaved, as you’d expect from a Fed-chair nomination that has been discussed for months.
But what stood out was the immense mania in gold and silver that had produced massive gains in the prior months and years; it was super-ripe; traders were sitting on massive profits; prices had already been extremely volatile in recent days, indicating that they’d become stretched beyond belief, and that any little thing could be that straw that would break the camel’s back.
QE seems to be history. Warsh has long hammered on the Fed and on Powell for QE and for the massive size of the Fed’s balance sheet that he says should be much smaller. That has been a consistent theme, and he has not deviated from it.
He and Treasury Secretary Bessent – long-time friends – are singing from the same hymn sheet. Bessent published an essay in which he blasted the Fed for its QE, for its enormous balance sheet, for the “perverse incentives for irresponsibility” that it has created, for its “Wealth Effect” policies, for failure to knock down inflation when it began to surge, for the “class and generational disparities” that its monetary policies, such as QE, have created [I discussed Bessent’s essay here].
When Warsh was a governor on the Federal Reserve Board under Bernanke, he supported QE-1 in order the get the Financial Crisis under control.
But when that was done, and the dust had settled and the economy had begun to recover, and markets were roaring higher in 2010, Bernanke nevertheless was pushing for QE-2, amid substantial opposition from some members on the FOMC, including Warsh and Thomas Hoenig. Bernanke announced QE-2 in November 2010, and Warsh quit in March 2011 (and Hoenig retired later in 2011). Warsh detailed his views and why he quit in a speech in 2018 at the Hoover Institution.
Warsh has long hammered on the Fed for its still huge balance sheet even after $2.4 trillion in QT. He wants to reduce the Fed’s balance sheet, but in cooperation with the Treasury to avoid disrupting markets. He says the large balance sheet got the Fed involved in fiscal matters, in funding the deficits, and that the Fed should not be involved in that. But this being a fiscal issue, the Treasury should have some say in the reduction of the balance sheet.
The media criticized Warsh back in the day for being an inflation hawk, even when inflation was relatively low. But he says inflation isn’t caused by rising wages and a rapidly growing economy, but by government spending and “money printing” – QE and the balance sheet. “Inflation is caused when the government spends too much and prints too much,” he said.
How much of an inflation hawk he will be if he is confirmed by the Senate remains to be seen. He said that inflationary pressures will decline because AI and other technologies would lead to productivity gains. But that might not work out that way. They might just lead to higher profits margins, especially in the services sector where companies have substantial pricing power, and where inflation is already high. They may not want to pass on those profits, if they materialize, to consumers.
But his hostility to “money printing” appears to be etched in stone, and he and Bessent agree on it. So this pulled the rug out from under the “debasement trade.”
The price of silver collapsed by 39% from the all-time high yesterday morning of $121.78 per ounce to about $75 at the low this afternoon. It then bounced off a little and currently trades at $85 an ounce, down by 30% from the all-time high yesterday. That is a huge historic move, even for silver.
Silver had a phenomenal run over the past 9 months, exploding by 317% from early April 2025 to the all-time high yesterday. Since early 2023, when it was trading at around $20, it exploded by 500%. Everyone and their dog were promoting silver. A classic mania. People make lots of money in manias.
And suddenly it popped. Yesterday evening already, as news appeared that Warsh and Trump had met, and that Trump would announce the Fed chair nomination Friday morning, people began to run for the exits to take profits, and the price dropped overnight, and forced selling set in on leveraged positions, just when buyers evaporated, and the bottom fell out.
Silver was already teetering after the breath-taking spike amid huge volatility when the Warsh nomination hit it and tripped it up.
The price of gold plunged by 14% from $5,575 yesterday morning to the intraday low today of $4,700. It has since then bounced some and is down 10% from yesterday morning, at $4,909 per ounce.
For long-term investors in precious metals – those that intend to let their heirs worry about what to do with their stack – none of this should be concerning. Manias and plunges occur periodically and are part of the long-term deal.
The dollar bounced a little. The DXY, which tracks the dollar against a basket of six currencies dominated by the euro and yen, rose by 1.7% from the low on Tuesday (95.55) to 97.15 currently, including a 0.9% rise today.
The dollar has spent much of the past 5 decades below that level. But the crisis media latched on to early January 2025, when the DXY had spiked to 110, and breathlessly hyped the drop since then. All of it was used by folks to hype the “debasement trade” and the collapse of the dollar, which helped drive gold and silver higher, when in fact the dollar is just kind of in the middle of its 50-year range:
Stocks dropped but not by much. It’s like nothing special happened. The S&P 500 fell by 0.4% for the day to 6,939, and is down less than 1% from its all-time high (7,002).
The Nasdaq Composite fell by 0.9% today to 23,461 and is down by 2.3% from its all-time high (24,020).
PPI came in hot this morning. May that did it. Stock investors essentially blew off the Warsh nomination. But they didn’t blow off Microsoft AI spend, and MSFT plunged by over 10% since its earnings call yesterday evening.
The Treasury market yawned upon the nomination of Warsh. The 10-year Treasury yield had ticked up 4 basis points last night, and then gave those up during the day, and ended the day essentially unchanged.
The price of oil has been zigzagging higher since January 7 on geopolitical issues. Today, WTI futures edged up 0.5% to $65.74 a barrel, up by about $10 from January 7. The Fed chair is irrelevant to the oil market.
Cryptos have been battered since early October, and the Warsh nomination added a little to it.
Bitcoin fell last night on the news of the Warsh meeting, but then recovered today. It’s now at about $84,000, but down from $90,000 on Wednesday, with much of the drop occurring Thursday morning, and down by 31% from the all-time high in October.
Ethereum USD declined about 4% since the news of the Warsh meeting last night, but that’s not a big move for a crypto. It’s down by 45% from its all-time high.
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Why is spun electrons $84k? It’s storage of nothing. Digital tulips and Trump grift.
Because we live in insano version of the mult-verse. Tulips mania is the new norm…FOMO is the trade currency
The video just above the comments is a feature I started a few months ago. Almost every business day, I post a new video by The Technical Traders, discussing the daily technical aspects of stocks and precious metals. Chris, who is a gold bug, has been talking about taking profits on gold and silver since earlier this week, and the technical reasons behind it. Right now, his Friday morning video is showing, where he discusses the technical aspects of the markets as they were moving today, stocks, gold, and silver.
Tulips. With limited supply.
Turns out people LOVE prime numbers. They’re willing to spend big $$$ on fancy prime numbers, and very afraid of missing out on them!
45% of Microsoft’s RPO’s are from OpenAI. $281 billion…..OpenAI revenue for 2025: $20 billion.
The new Windows is taking/saving screenshots of what you are doing. I thought this was conspiracy theory, then I googled it. Google is working on similar feature for Chrome OS.
You would think Linux would start to catch on – it’s much simpler to use than it used to be. No spyware, no advertising.
The $100 billion deal between NVIDIA and OpenAI was never binding and is now off, according to a WSJ article.
With that $100 billion not happening, I wonder how that will mess up all the other interconnected nonbinding deals that have been announced.
This circular financing thing will probably unravel real quick without this deal…looks like Ed Zitron’s prediction and criticism is coming home to roost quicker than anticipated.
Altman is going to have to hustle harder than ever now, cramping ads into chatgpt is not going to save them, think his next play will probably be swindling the gov for a bailout if the wheel does indeed start to come off fast…
Global New Network: The Federal Reserve chair recently told the press that this AI frenzy is not like the dot-com bubble for one simple reason: These companies actually have earnings.
However, former hedge fund manager Larry Benedict pushed back on this argument in a recent interview. He said that there’s always a reason to justify absurd valuations:
Positive earnings
A breakthrough technology like the internet or AI
Customer or revenue growth
Larry pointed out that Lehman Brothers posted record profits in the years leading up to its collapse. He also pointed out here that the companies leading the AI revolution have a major financial flaw that could soon lead to their “Lehman Brothers” moment.
When this flaw is exposed, it could trigger up to a 80-90% crash in any of the Mag Seven stocks. And it would be wise to not dismiss this warning as hyperbole.
The Lehman profits were pretty dubious, as very shaky assets were not being marked to market.
Companies like Google, Amazon, and Microsoft, on the other hand, have real money coming in every day from retail customers, advertisers, and corporate customers.
Was there any mention of why it was off?
Also what’s the point of a non binding deal?
It’s a long article in the WSJ based on sources. So I cannot describe it all here. Short version is that Nvidia had lots of misgivings about the deal and about OpenAI.
With Multiple banks issuing recent position papers calling for 6k gold and 125+ silver, with CME circuit breakers not working, with it being a Friday at the end of the month, this had zero to do with a new FED chair. This was 100% big institutional players, banks, bullion banks, either covering their own massive shorts, or allowing someone else to do so.
Anyone who believes this was about a FED chair has cognitive dissonance.
🤣
It’s always THE BANKS when silver tanks. But never the banks when silver spikes. I’ve been listening to the same THE BANKS nonsense for 15 years every single time when silver plunges.
Why would they have to “cover their own massive shorts” if silver hadn’t already dropped a lot? I pointed that out; it’s called forced selling. It sets in after the price has already dropped a bunch. Then there are suddenly no buyers, and the price collapses under forced selling. I explained that in the article. All you have to do is read it.
But what triggered that big plunge that started Thursday evening? The Warsh nomination. We discussed that here in the comments on Thursday evening as it was happening.
price goes up “im a genius!”
price goes down “market manipulation!!!”
Poor Waller…..all that pucking and showing daddy he wants lower interest rates too just to get pass over like left over dinner…..
Now he can become a hawk again 🤣
I had dragged out my grandmother’s silver service, all my silver coins and stuff and was on my way to the coin shop to sell at spot. Oh darn, gonna have to put it all back for the next time. But hey, spot price $79.57, just call it $80. Up 7% in 1 day. Owners of Comex futures contracts will want delivery of physical Silver. Shorts are trapped. The spot price is higher then the futures price. Dead cat bounce or opportunity we shall have to just wait abit.
I’ve got a prepaid Gold Exchange package with prepaid return postage in the way in the mail from JTV and am hoping and praying gold doesn’t collapse to $20 per pound by the time I can stuff a pile of gold in it and get it back to them in exchange for real US Dollars which are now soaring!
Spot price for the precious metals is a fraud , a ghost price . If you want to buy silver you will pay ~ 10$ over spot .
If you want to sell silver few dealers will even provide a bid over the last few days because they do not know what price that can sell silver to refiners
I have been lectured that the real price is determined by the Shanghai exchange . That sounds easy . All I have to do is to arrange shipping and insurance to Shanghai and pay any tariffs and duties . Even though seemed like a very “ SIMPLE “ process 😄. i decided to sell my silver 2 days ago via selling the Mar futures . The price was considerably below the “ so called spot” and created a need to
Transfer my futures position to a future month later
I call the spot price of silver the roach commodity .
They let you buy in , but you can not get out .
Hi Mish,
I clicked on the link to read your discussion of Bessent’s essay, and got a 404 error. Is your essay still up?
Thanks
Thanks! It’s fixed now.
BTW, I’m Wolf, not Mish.
I read Mish for years and that comment made me do a double take.
Hey, **** is a four letter word! Be careful the way you sling those around.
My personal theory is the Wolfman was heavily short, made a few calls to some buddies and they pulled the plug.
Mish banned me from his site a couple of months ago.
He couldn’t handle my opinions that would support Trump one minute then find blame with Trump the next. I guess he really wanted me to go all in on his serious TDS issue. That guy hates Trump, and his comment thread has to be filled with people from Minneapolis.
At least over here, you just don’t talk about the politics all that much which is fine.
Apologies, Wolf. I was reading Mish on X a little while ago.
You write much better pieces than he does :-)
Thanks
1:04 PM 1/30/2026
Dow 48,892.47 -179.09 -0.36%
S&P 500 6,939.03 -29.98 -0.43%
Nasdaq 23,461.82 -223.30 -0.94%
VIX 17.44 +0.56 3.32%
Gold 4,909.00 -445.80 -8.33%
Oil 65.74 +0.32 0.49%
Gold is a worthless commodity, other than the most conductive metal. without the historical basis as a storage of value.
The long term is not the same as the short term ever
MW: Trump picking Kevin Warsh as Fed chair wasn’t enough to soothe shaky markets
MW: Silver suffers biggest drop in 46 years, with ‘every man and his dog rushing for the exit’
Opinion: Gold and silver’s $7 trillion wipeout delivers a painful lesson about risk
Having successfully traded since 1970 , I have been amazed how many think that trading is such an easy way to make money . There are times in which there are advantages in a specific trade . These times do not present themselves every day , every week or even every month . Now is the time in silver because
Volatility has exploded in put options , even greater than movements in silver today
MY RECOMMENDATION IS A SMALLER BALANCE SHEET. TAKES THE FED BACK TO A MORE MANAGEABLE SIZE, A MORE SERIOUS JOB, AND INTERESTINGLY, IF YOU CAN HAVE A SMALLER BALANCE SHEET, YOU CAN HAVE LOWER INTEREST RATES. – Kevin Warsh
https://www.c-span.org/program/public-affairs-event/reagan-economic-forum-discussion-on-trade-and-technology/660649
Wolf, do you agree with Warsh? Can we control inflation only through the balance sheet? Or are interest rates at a certain level a necessity to control inflation.
He actually has two factors to bring down inflation, but the Fed can only do one: Reduce spending (Congress) and reduce the balance sheet. I’m pretty sure both together would work like a charm. But reducing the balance sheet further might also work eventually. It’s worth a try.
He has also advocated for higher “real” interest rates, so lower inflation but with policy rates above inflation at a wider spread. So I don’t know how that fits in now, but that’s something that would occur when inflation has come down to target.
In the interim the Treasury needs to finance around 11 trillion in 2026 , most of which is refinancing prior debt . I have talked to no one and have read no comments ( except by Bessent) who think that the Federal deficit will be reduced by any significant amount in 2026.
And has not the Fed already started mini QE . .
Without crashing markets, the Fed really needs to find ways to keep lowing its balance sheet. They need to be destroying more money, even if it’s at a very slow rate. I know that’s easier said than done, but I also hope he’ll start telling Congress every chance he gets to start getting its fiscal house in order. If he could find some success in that, then I’d sing his praises.
Bank of Zimbabwe: This Federal Reserve nomination on tight monetary policy is a day late and a dollar short. To give proper credit: While Powell hasn’t been able to figure out where inflation comes from, the Africans in Zimbabwe have. Zimbabwe got inflation down to 4.1%; there is a Jan 26, 2026 Bloomberg article on it (behind a paywall). AI says tight monetary policy, government spending etc., with the IMF praising them. The folks in Zimbabwe made their own money, a ZiG that is 40% Gold and a basket of currencies. ironically nearly identical to the original Federal Reserve dollar of 1913.
So while the Federal Reserve and Whitehouse are crowing about a sound monetary policy, the African men in Zimbabwe have already figured it out. Give credit where credit is due.
The 3 great hyperinflations of the 20th century were
WEIMAR post wW1
Hungary Post WW2
Zimbabwe
All three of these hyperinflations were directly related to wars immediately proceeding these hyperinflations
It is highly indicative of the basic ignorance of those who state that the US is on the same course toward hyperinflation
What about Turkey, Argentina, Bolivia, Peru, Brazil?
MW: As bitcoin falls toward $80K, here’s why Fed Chair Warsh may not be enough to revive the crypto
Wow. It’s almost as if this is a…gasp…”decent” pick?
It’s as if Warsh’s ideas seem…I dunno…sensible? And the pick itself is…counterintuitive, to put it mildly, to what the Wizards of Oz…sorry, our “Media”, concluded Trump must look for in a new Fed Chairman?
Ignorant on finance though I truly am, I value WOLFSTREET for being FAIR and IMPARTIAL through all our trials and tribulations, and for cutting through the media/FinTwit clickbait BS. You deserve millions more readers than you have even now. Thanks from afar.
Yeah at first glance he looks reasonable…but I’m still skeptical as to why he was then chosen
Need to see Warsh in action vs just talking. He says a lot of conflicting things that sound good independently but don’t make sense under current market conditions if actioned on quickly.
He said he wants a much smaller balance sheet at the Fed, but he also wants long term rates down, and he also wants to bring short term rates down, all while keeping inflation on target.
That makes little sense in the current reality. Sizing down the balance sheet will take years, if done orderly and can push rates higher depending on the private market’s capacity to absorb all that old and new debt. Inflation isn’t going to get reduced through deflationary aspects of AI in any short term window, that’s nonsense. If anything AI is net adding to inflationary load with spending / waste pressuring capacity until the bubble bursts.
Just don’t see how his ideas actually get the results he’s proposed in anything but a long horizon. Almost expect him to push for lower rates while ignoring inflation in the short term hoping inflation drifts lower on its own, and reverse course later after it again proves sticky.
For what it’s worth, Paul Krugman was saying something similar today as well. He says Warsh is a political guy and was only a hawk during the 2010’s because Obama was in office, so the people calling him one now are making a mistake. According to him, many economists also consider Warsh’s rhetoric as basically gibberish – big words and unconnected ideas. He thinks that Warsh’s presence on the board won’t be an immediate problem since he’s just one vote, but he could be a major liability in a crisis.
(As an aside, Krugman isn’t as much of a free-trade guy now, although more for practical reasons than theoretical: globalization is unpopular with the public because of the disproportionate local effects, and because of the national security issues with outsourcing to China.)
…By the way, I just read the speech that Wolf linked. I’ve never seen someone use that kind of verbiage who’s actually being honest. If I didn’t know any better I’d think I was reading Jordan Peterson.
I wonder what kind of conversations Trump had with Warsh? I know Trump expects loyalty, but he has to understand that the Fed has to be reasonably independent. Warsh has to have explained his plan to Trump, so that there’s not a gotcha’s coming that will put Warsh under fire. I’d also like to see Warsh update the Fed’s PCE target to something closer to 2.5%, which seems to be a more reasonable goal.
Now Warsh will become a dove again. Trump has constantly said he wants stonks, crypto, housing and all other bubbles to continue going up with even bigger government spending then current levels. Further for Trump stock market seems to the barometer of whole economny. A 180 by Warsh seems given. Will be extremely surprised If he doesnt.