Introduction: Gold and silver slump in ‘metals meltdown’
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Commodity, precious metals and crypto asset prices are all sliding today, as the record-breaking rally in gold and silver cools.
Financial markets have begun the new week in a volatile mood, with analysts talking about a “metals meltdown” that is also rattling the equities markets.
Gold is falling back after a months-long rally drove it to a series of record highs. It’s slumped by over 8% so far this session, down to $4,465 a ounce, having hit a record high of nearly $5,600/oz just last week.
Silver is living up to its nickname of the “Devil’s Metal” (for its volatility) – it has slumped by 13% today.
Both gold and silver tumbled last Friday, the day in which Donald Trump said he would nominate Kevin Warsh to be the next chair of the Federal Reserve.
Michael Brown, senior research strategist at Pepperstone, says:
Certainly, the final trading day of January was anything but calm, being dominated by what can only be termed a meltdown in the metals space. In terms of ‘scores on the doors’, spot gold ended Friday with losses of 9%, bullion’s worst day since 2013, and fourth worst in the last 45 years.
Silver, meanwhile, shed as much as 35% at the lows, before trimming losses to end the day a still-chunky 26% lower, the worst daily loss ever, at least per Bloomberg data.
Warsh does have a reputation as a more hawkish policymaker than rival candidates, who wants to shrink the Fed’s balance sheet, so investors may be anticipating tighter monetary policy than expected (although Trump is already joking about suing Warsh if he doesn’t lower interest rates).
Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia (CBA), explains:
“A stronger U.S. dollar is also adding pressure on precious metals and other commodities, including oil and base metals.”
“The decision by markets to sell precious metals alongside U.S. equities suggests investors view Warsh as more hawkish.”
But.. KCM Chief Trade analyst Tim Waterer argues the selloff goes deeper, explaining:
“The Warsh nomination, whilst likely being the initial trigger, did not justify the size of the downward move in precious metals, with forced liquidations and margin increases having a cascading effect.”
The agenda
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7am GMT: Nationwide house price index for January
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9am GMT: Eurozone manufacturing PMI for January
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9.30am GMT: UK manufacturing PMI for January
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11.45am BST: Bank of England governor Sarah Breeden gives speech on ‘Next generation UK retail payments’
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3pm GMT: US manufacturing PMI for January
Key events
The turmoil in the precious metals market has left traders in China nursing losses, with one dealer reportedly fleeing the country.
Bloomberg are reporting that Chinese metals traders have racked up losses totaling at least 1 billion yuan (£105m), and that Xu Maohua, a metals dealer known as “The Hat” has scarpered.
At the heart of the crisis is a trading network facilitated by Xu Maohua, a metals dealer nicknamed The Hat, said the people, including some who worked with or did business with him and are directly affected by the losses. State-backed SDIC Commodities Co. was the highest-profile participant, they added, asking not to be named given the sensitivity of the matter.
Xu owed money to the company for shipments of copper and other metals, and it in turn owed money to its suppliers, the people said. The fallout includes one lawsuit against SDIC Commodities filed for over 200 million yuan in damages and bills that the plaintiff claims have gone unpaid, according to an exchange filing from a company involved. The firm has not publicly responded.
Exclusive: Metals traders face at least 1 billion yuan ($144 million) of losses after a dealer known as ‘The Hat’ fled China, alarming top regulators https://t.co/aW6kAQUH8h
— Bloomberg (@business) February 2, 2026
Waitrose: Damp January is the new Dry January
Julia Kollewe
Waitrose have reported that Dry January was not so dry after all, my colleague Julia Kollewe writes.
“Move over Blue Monday, it’s all about ‘Damp Monday’,” quipped the upmarket grocer, which is part of the John Lewis Partnership.
This year, the January slump ended early on Monday 12 January, when shoppers started adding more wines, beers and spirits back into their baskets, with sales up 11% compared to the week before.
Waitrose said it was seeing a significant softening of the Dry January trend. In January 2022, alcohol sales were 42% lower on average than the other months of the year, while this January, the reduction was much smaller, around 25%.
The company sold 25% more Argentinian wine and 27% more Chilean wine compared to this time last year.
While 58% of the UK public intended to cut back on booze, roughly 31% opted for a “Damp January” – reducing intake rather than cutting it out entirely, Waitrose said, citing figures from trade mag The Spirits Business.
Pierpaolo Petrassi, head of beers, wines & spirit at Waitrose, said:
“Damp is the new dry, as we’re seeing customers move away from the ‘all-or-nothing’ mentality and instead look towards more mindful, ‘damp’ moderation rather than quit entirely.
“No doubt the no and low trend skyrocketed in 2022 as the result of the ‘pandemic reset’ transitioning out of the final lockdowns, as well as the ‘sober curious’ movement going mainstream on social media. Now, 2026 is the ‘lifestyle’ year, with customers finding balance as part of a more tempered, year-round approach to drinking.”
The “pullback” in the gold price today looks more like a liquidity event than a change in the long-term case for holding bullion, argues John Wyn-Evans, head of market analysis at Rathbones.
Wyn-Evans says the sharp reversal in gold’s momentum was helped along by President Trump’s decision to nominate Kevin Warsh as the next Fed chair on Friday, which prompted a rise in the US dollar.
He writes:
“Not for the first time in recent market history, we’re witnessing a spectacular unwinding of leveraged positions, this time in precious metals.
“The sharp pullback in gold looks more like a liquidity and positioning event than a change in the long‑term case for the asset. After a powerful run‑up driven by momentum strategies, short squeezes and leveraged buying, that same positioning has unwound rapidly, amplifying downside moves. Reports of unsettled trades in parts of the metals market have added to near‑term pressure, but, in our view, this reflects stress among specific market participants rather than systemic weakness across precious metals.
The FTSE 100 is benefitting from its holding of ‘defensive’ companies today.
Unilever (2%), catering firm Compass (+1.9%), and insurers Beazley (+2.7%) and Aviva (+2.1%) are all in the top risers.
FTSE 100 now up on the day
The UK’s main stock market index has now pushed higher, helped by the minor recovery in gold and silver off their lows.
The FTSE 100 is now up 29 points or 0.28% at 10,252 points.
Full story: Plunge in price of gold and silver rattles global stock markets
Precious metal prices update
Precious metal prices are stemming some of their earlier losses.
Gold is currently down almost 4% today at $4,672 an ounce, adding to the heavy losses on Friday (but better than its 8% drop at one point this morning)
Silver’s 4.5% lower today (having been down over 13% earlier) at around $81/oz.
Today’s selloff has been partly blamed on top commodity exchange CME Group’s decision to raise margin requirements following the collapse in metals prices last week.
This morning’s pick-up in UK factory growth is the latest in a series of encouraging economic data.
The EY Item Club have upgraded their forecast for growth in 2026 to 0.9%, up from the 0.8% forecast in November – they point to signs that activity picked up at the end of 2025.
However, business investment is now set to contract (by 0.2%) this year, as “global uncertainty and trade disruption cause firms to postpone investment decisions”.
VIX index highest in nearly two weeks.
Wall Street’s ‘fear index’ has hit a near two-week high today.
The CBOE market volatility index, the Vix, is up 9.6% at 19.1 points. That’s the highest since 20 January, when concerns over Donald Trump’s designs on Greenland were worrying investors.
UK manufacturing accelerates: what the experts say
Martin Beck, chief economist at WPI Strategy, says the restart of activity at JLR’s factories after last year’s cyber attack boosted manufacturing in January:
“January’s UK manufacturing PMI offered a tentative note of optimism, rising to a 17-month high of 51.8, up from 50.6 in December. The output sub-index improved more modestly, reaching the joint highest since September, while export orders moved into expansionary territory for the first time in four years.
“Part of January’s improvement may reflect Jaguar Land Rover’s restart of production in late-2025 following last year’s cyber-attack, which is likely continuing to provide some temporary support to the headline PMI. And historically, the link between PMI surveys and official data has been imperfect, so a stronger performance from the former may not necessarily be reflected in the latter.
“Even so, the latest survey reinforces our above-consensus view on near-term UK growth. Despite ongoing concerns around geopolitics and rising business costs, confidence among manufacturers improved markedly at the start of the year, suggesting firms are seeing the outlook as less bleak than at any time since before the autumn 2024 Budget.
Richard Powell, partner at MHA warns that costs are rising:
“January’s PMI figures reflect a sector that is seeing light at the end of the tunnel. The PMI has risen for the fourth consecutive month, suggesting that it is turning a corner. However, there are still signs that it is weighed down by uncertainty, particularly around the geopolitical arena, which continues to play on manufacturers’ minds. That uncertainty may already be denting sales, though if the index holds in the low 50s it remains a broadly positive signal for the start of the year.
We saw momentum building towards the end of last year, and there is underlying optimism across the sector. But manufacturers are clear: they need stability and confidence to invest. Rising energy costs and upward pressure on employment bills show no sign of easing, and the incoming Employment Rights Bill risks adding further regulation and red tape at a time when businesses are asking for support, not additional burden.
Fhaheen Khan, senior economist at manufacturing body Make UK, fears that 2026 will be “one of the most expensive years ever to run a business in the UK”:
“Manufacturing activity is finally moving at a pace deemed worthy of its optimism, taking advantage of the much needed stability in the policy environment since the Budget. Until recently, many businesses had paused investment due to cost uncertainty, though it is unfortunate that cost cutting measures are favouring job losses which will lead to a new headache for the Government.
“Make no mistake this will be one of the most expensive years ever to run a business in the UK. Manufacturers must still navigate the rising cost of labour, high energy prices and trade uncertainty whilst facing pressures to raise wages even in a loosening labour market. While certainty in the policy environment can improve demand conditions and aid business recovery, just so long as businesses are able to get on with their day to day there remains grounds for optimism. It remains imperative for Government to deliver a successful industrial strategy which can support output expansion and, whilst we know the intent is there, without material, bold and decisive action our ambitions for economic growth will not be realised.”
UK factory growth hits 17-month high
Breaking: the UK manufacturing sector is growing at its fastest pace in almost 18 months, in a boost to chancellor Rachel Reeves.
Data firm S&P Global has reported that its Manufacturing PMI, which tracks activity in the sector, rose to a 17-month high of 51.8 in January (anything over 50 shows growth).
Purchasing managers reported that new export orders rose for the first time in four years, with business optimism at its highest level since before Reeves’s first budgest in autumn 2024.
Output and new export business all increased too, with reports of higher sales volumes to Europe, the US, China and several emerging markets.
Companies also reported a small acceleration in their input costs, partly due to rising costs of raw materials such as metals (so today’s tumble in copper, tin and zinc might be a relief!). The prices of energy, food products, freight, packaging and plastics were all reported as rising in price too..
Rob Dobson, director at S&P Global Market Intelligence, says:
“UK manufacturing made a solid start to 2026, showing encouraging resilience in the face of rising geopolitical tensions. Rates of output and order book growth accelerated, while new export business rose for the first time in four years, with Europe, China and the US the main recipients.
There was also a positive bounceback in business confidence, which rose to its highest level since before the 2024 Autumn budget, as manufacturers focussed on opportunities lying ahead despite persistent concerns about the geopolitical environment, Government policy and tariff tensions.
There was also encouraging news on the jobs front. Although the strongest rise in new business for almost four years was insufficient to fully quell reductions to staff headcounts, the rate of cutting slowed to its weakest since job losses started 15 months ago.
Cost pressures are creeping higher though, as the pass through of the increased Minimum Wage and employer NI contributions continue to work through the supply chain alongside the rising costs for commodities such as metals.
Today’s market mayhem is an uncomfortable backdrop for the Bank of England to be setting interest rates.
The BoE’s monetary policy commitee is due to set borrowing costs at noon on Thursday, with the City expecting them to hold Bank Rate at 3.75%.
Goldman Sachs analysts James Moberly and Sven Jari Stehn predict a 7-2 split, with policymakers Swati Dhingra and Alan Taylor voting for a cut.
They told clients:
Looking ahead, we continue to think that weaker labour market data will push the MPC to cut in March, June, and September to a 3% terminal rate, close to our estimate of the neutral rate but below market pricing. That said, uncertainty around the timing of cuts is high, and firmer data would likely result in a more drawn-out easing cycle.
Eurozone manufacturing improving ‘at a snail’s pace’
New data shows the eurozone manufacturing sector shrank last month, despite a pick-up in output.
S&P Global’s monthly poll of purchasing managers has found that new factory orders fell in January, as firms reduced their buying quantities and continued to cut jobs.
This left the HCOB eurozone manufacturing PMI at 49.5, up from December’s 48.8, but still below the 50-point mark showing stagnation.
The HCOB eurozone manufacturing PMI output index rose to a three-month high of 50.5.
Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, says there are some encouraging signs from Greece, France, and Germany:
“Some progress can be seen in the manufacturing sector, but it’s happening at a snail’s pace. After dropping in December, production ticked up slightly at the start of the year, essentially continuing the growth path we saw between spring and fall last year.
Order intakes haven’t been much help, though — they fell again, even if not quite as sharply as at the end of last year. Right now, it’s hard to say what might put an end to the ongoing rundown of inventories, which makes a strong shortterm upswing rather unlikely.
Still, when looking twelve months ahead, companies are feeling a bit more upbeat than last month about expanding their production.”
Scaramucci: market has decided that Warsh is Volcker
Financial Anthony Scaramucci believes the market selloff is triggered by the choice of Kevin Warsh to run the Federal Reserve (confirmation by the Senate notwithstanding).
Scaramucci, who briefly served as Donald Trump’s White House communications director in 2017, has posted that “The market has decided that Kevin Warsh is Paul Volcker”.
That’s a reference to the hawkish Fed chair of the 1980s who hiked interest rates to tame inflation.
The market has decided that Kevin Warsh is Paul Volcker.
— Anthony Scaramucci (@Scaramucci) February 2, 2026
Actually, Warsh’s problem may be that he pushes for lower rates (as demanded by the White House) but finds that other the Fed policymakers won’t pay ball….
