By Ryan Boyle

Prices in efficient markets will rapidly adjust to reflect new risks and developments. The year has started with a flurry of geopolitical events, which have created significant volatility in the markets for currencies and commodities.

Both markets had moved in a steady trend over the past two years. The U.S. economy outperformed its peers in the pandemic recovery, driving the value of the dollar up to a peak in January 2025. Since then, concerns about U.S. fiscal sustainability and policy uncertainty have impaired its gains.  Better prospects for the rest of the world supported the value of the counterparties in dollar trades. Mild dollar depreciation in 2025 gave way to an accelerated selloff to start 2026.

Investors in search of safe havens would normally buy dollar assets; the dollar has appreciated during past crises. But when the dollar is in question, they seek alternatives. Central banks have been steadily diversifying their foreign reserves away from the dollar, often in favor of gold.  Retail investors saw the gradual gain in precious metals and piled in. Interest in metals snowballed at the start of this year, with gold gaining 27% and silver up 67% in the month of January.

The run-up was unsustainable, abruptly ending last week. Gold and silver retreated, spurred by the nomination of a Federal Reserve Chair who is expected to endorse sound money practices. The dollar’s decline abated; though imperfect, it holds value as a reserve currency with no ready competition.  While precious metals lost their luster, industrial metals like copper held their value.  Producers are stockpiling amid tech demand and hopes of an industrial expansion to come.

Markets may struggle to set a price for unknowable risks. In the busy year to date, equities and bonds have been unusually calm, while gold and silver buyers may have over-reacted. In uncertain intervals, we need to consider a broad range of signals before reaching conclusions.