Kevin Warsh and a Turning Point in U.S. Monetary Policy: Where Are Gold and Silver Headed?

A leadership change at the Federal Reserve is always a major turning point for global financial markets, especially for gold and silver, the two precious metals most sensitive to U.S. monetary policy. If Kevin Warsh steps into the top role to replace Jerome Powell, markets will not focus only on the individual, but on the policy philosophy behind him. Warsh has long been viewed as favoring monetary discipline, prioritizing currency stability over prolonged low-rate stimulus. That alone opens two very different paths for gold and silver prices in the coming period.

Why a Change in Fed Leadership Strongly Affects Precious Metals

Gold and silver react sharply to movements in the U.S. dollar, bond yields, and inflation expectations. When monetary policy turns more hawkish, real interest rates rise, increasing the opportunity cost of holding precious metals because they do not generate income. Conversely, when policy eases or inflation moves out of control, the store-of-value role of precious metals becomes more prominent. Therefore, every scenario surrounding Warsh ultimately comes back to one core question: will the Fed prioritize a strong dollar or economic growth?

Scenario One: A Hawkish Policy Shock for Gold and Silver

In the first scenario, Warsh adopts a firm stance from the beginning of his term. The Fed sends a clear signal that fighting inflation and defending the strength of the dollar are top priorities. Interest rates remain elevated for an extended period, the balance sheet continues to shrink, and liquidity in the financial system is kept tight. Markets would likely respond quickly by pushing U.S. Treasury yields higher and pulling global capital back into the United States. The dollar would strengthen not only because of higher rates, but also because of confidence that the U.S. is determined to maintain its central role in the global monetary system at a time when some countries are seeking to reduce reliance on the dollar.

For gold, this is typically an unfavorable environment in the early phase. As real yields rise, investors tend to shift funds into bonds or other income-generating assets. Gold prices would therefore face downward pressure, especially if the dollar’s rise is rapid. Silver, although also a precious metal, faces an additional layer of impact because it is closely tied to industrial demand. If overly tight monetary policy slows the global economy, weakening industrial demand would create a double burden for silver. In the initial phase of a hawkish scenario, silver could therefore be even more volatile to the downside than gold.

However, the story does not end with the immediate reaction. If policy tightening becomes too aggressive and significantly weakens U.S. and global growth, markets may begin to fear recession. At that point, defensive demand returns. History shows that gold often finds support when economic risks rise, even before rates are cut. If inflation remains persistent due to energy costs or supply chain disruptions, real yields may not rise as much as nominal rates. In such a context, gold could recover after its initial decline. Silver may also rebound, but the extent would depend heavily on whether industrial demand improves.

Spillover Effects on the Global Economy and Metal Demand

Another key factor is the spillover effect on emerging economies. A strong dollar and high U.S. rates often lead to capital outflows from these markets, weakening local currencies and raising import costs. This can create localized inflation pressure in many countries while simultaneously restraining global growth. As consumer spending and investment slow worldwide, physical demand for silver and other metals weakens. Gold, in this environment, plays more of a defensive role than one tied to real consumption demand.

Scenario Two: A Flexible Approach and a More Stable Foundation for Gold and Silver

In the second scenario, Warsh takes a more flexible approach. Instead of shocking markets with rapid and aggressive moves, the Fed adjusts policy based on incoming economic data. Rates may still remain relatively high compared to the ultra-loose era, but they are not pushed to extremes. Balance sheet reduction proceeds in a controlled manner to avoid choking off liquidity. The key message in this scenario is stability, predictability, and the avoidance of systemic risk.

In such an environment, the dollar may retain strength but not surge dramatically. Bond yields would rise more gradually rather than spike. For gold, this creates a more neutral backdrop. Prices may not explode higher because there is no inflation shock or financial crisis, but they are also less likely to fall sharply because real rates are not rising aggressively and geopolitical uncertainty remains present. Gold could trade within a broad range while gradually building a base if markets believe the tightening cycle is nearing its peak.

Silver may perform better than gold in this scenario. If the global economy is not severely constrained, industrial demand tied to renewable energy, electric vehicles, and electronics continues to support silver. If the dollar is not excessively strong, currency pressure on commodities eases, allowing silver prices to reflect more of their real supply and demand dynamics. In this case, silver could benefit from a dual role as both a precious and an industrial metal.

Long Term Forces Still Support Precious Metals

The biggest difference between the two scenarios lies in the speed and intensity of policy change. A rapid and forceful shift toward hawkishness could create sharp volatility, pushing gold and silver into a deep correction before they find a new equilibrium. A smoother and more measured approach would give markets time to adjust, resulting in slower but more sustainable price trends for precious metals.

Over the long term, both gold and silver remain influenced by forces larger than any single Fed leader. High global debt levels, the gradual shift toward a more multipolar monetary system, geopolitical risks, and the demand linked to the energy transition all provide structural support for precious metals. Warsh may change the rhythm of the market for several years, but it would be difficult to completely reverse these long-term trends.

If Warsh truly pursues an aggressive hawkish

If Warsh truly pursues an aggressive hawkish path from the start, gold and silver could experience a significant correction driven by a stronger dollar and higher yields. If he chooses a gradual and data-dependent path, precious metals are more likely to maintain stable price levels and build a base for a longer-term upward cycle. For investors, what matters is not only who leads the Fed, but how real interest rates, the dollar, and inflation expectations respond to each policy signal.