Commodities experienced steep losses on Monday as markets reacted to a string of developments that altered risk and liquidity dynamics across asset classes. Precious metals, crude oil and base metals were among the hardest hit after investors reassessed monetary policy expectations following a high-profile U.S. appointment and adjusted positions in response to regulatory margin changes and geopolitical signals.
Market moves and immediate drivers
Gold and silver tumbled for a second consecutive session after the CME Group announced higher margin requirements on metal futures, a move that came into effect from Monday's market close. The metals had surged earlier in January - jumping 30% for gold and 71% for silver to record peaks - before the sudden reversal. On Monday gold declined nearly 4% after touching its weakest level in four weeks, while silver fell nearly 5%.
Energy markets also retreated. Brent and U.S. crude settled more than 4% lower, pulling back from recent multi-month highs. London Metal Exchange copper dropped about 4% as industrial metals joined the wider downturn.
Policy appointment and dollar dynamics
The selloff accelerated after President Donald Trump on Friday named Kevin Warsh, a former Federal Reserve governor, as his choice to replace Jerome Powell as chair of the central bank in May. The nomination disrupted market expectations that Powell's successor would favor aggressive monetary easing, prompting a repricing of interest rate outlooks and a strengthening U.S. dollar.
When the dollar rises it tends to make dollar-denominated commodities more expensive for holders of other currencies, reducing demand. Market participants linked the enhanced dollar to part of the pressure on commodity prices. Though Warsh has recently advocated for rate reductions, he carried a reputation as an inflation hawk from his prior Fed tenure, and that background contributed to the market's shift toward anticipating that interest rates may remain higher for longer.
Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia, summed up the market interaction, saying, "A stronger U.S. dollar is also adding pressure on precious metals and other commodities, including oil and base metals."
Margin hikes and the acceleration of selling in precious metals
The rout that began on Friday intensified after the CME Group increased margin requirements on its metal futures contracts. The initial selloff on Friday produced the steepest one-day decline in spot gold since 1983 - a fall of more than 9% - while silver plunged 27% in its largest single-day decline on record.
An increase in margin requirements raises the capital traders must post to hold futures positions. That typically reduces speculative participation, diminishes liquidity and can compel leveraged participants to unwind positions, further amplifying price moves. "The scale of the unwind unfolding in gold today is something I haven't witnessed since the dark days of the 2008 global financial crisis," said Tony Sycamore, a market analyst at IG.
Geopolitical signals, weather and energy demand
Energy prices were further pressured by signs of easing tensions between the United States and Iran. Over the weekend President Trump said Iran was "seriously talking" with Washington, comments that reduced immediate fears of conflict with the OPEC member. Additional reports indicated Iran's Revolutionary Guards' naval forces had no plans for live-fire exercises in the Strait of Hormuz, which market participants interpreted as further evidence of de-escalation.
Milder weather in the United States also weighed on energy demand expectations, contributing to the decline in crude prices on Monday.
Industrial metals and China-related demand patterns
Copper and iron ore encountered headwinds ahead of China's Lunar New Year, which begins on February 15. Traders and analysts pointed to elevated inventories and subdued demand as drivers of market unease. End-user activity and transaction volumes are commonly subdued in the run-up to the holiday, and that dynamic was cited as a factor weighing on industrial and bulk metals.
Agricultural contracts and secondary effects
In agricultural markets Chicago wheat fell about 2% as the dollar firmed. Lower energy prices also exerted downward pressure on corn and soybeans, commodities that are key feedstocks for biofuel production. These moves show how shifts in one market - the currency or energy complex - can transmit to other commodity sectors.
Market outlook commentary
Facing the central questions about whether recent moves signal a structural downturn in commodity prices or a shorter-lived correction, Dhar noted the uncertainty: "The key question is whether this marks the start of a structural downturn in commodity prices or merely a correction." He added that his view was that the recent weakness represented a correction and a buying opportunity rather than a fundamental shift in price direction.
For now, the combination of monetary policy reassessments, higher margin requirements, signs of geopolitical de-escalation and seasonal demand patterns in China appears to be the dominant force shaping commodity price action.