Market Review 2nd February 2026

Everything you need to know, Simplified!

Summary

• President Trump nominated Kevin Warsh as the next chair of the US Federal Reserve (Fed), a pick which eased concern over central bank independence and sent gold and silver prices falling heavily

• The Fed kept rates unchanged, in line with expectations, and US equities were broadly flat on the week as markets digested falling consumer confidence, steady employment data and a rebound in durable goods orders

• European equities were mixed; sentiment indicators improved, notably in France whilst Germany trimmed forecast growth from 1.3% to 1.0%

• Japan saw a relatively quieter week, although equities were modestly down as investors are looking ahead to the election on 8 February.

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Market Review

Gold, silver and bitcoin – the unwinding of the debasement trade

Friday and Saturday demonstrated the speed at which hot trades can unwind, in line with our call for caution in last week’s review. Having hit record highs early in the week, gold and silver both suffered double digit declines, with silver seeing its worst day since 1980 on Friday. Despite these falls, both gold (+11.5%) and silver (+17.1%) remain strongly up year-to-date. Bitcoin slid to its lowest level since last April’s tariff drama – closing the week down 10.5% with a year-to-date drop of 14.1% - struggling with its reputation for being ‘digital gold’.

The move started in response to the nomination of Kevin Warsh as the next chair of the Fed. Warsh is an experienced central banker who served during the 2006-2011 period encompassing the Global Financial Crisis. He is a vocal critic of large-scale quantitative easing and has been openly critical of the Fed, describing a ‘credibility deficit’ that lies with the incumbent governors.

Warsh is an eminently ‘sensible’ pick for Trump, flying in the face of much of the concern that has been driving the trade for safe-haven assets like precious metals. That trade started to unwind on Friday and Saturday, initially prompted by the news on Warsh but exacerbated by a rush to book profits on what has been an exceptionally strong move in 2025 and the first few weeks of 2026. Market activity points to a level of ‘forced selling’ which was unlikely reflective of a pure response to developments at the Fed.

Fundamentally, Warsh is viewed as a hawkish pick – i.e. he is likely to resist pressure to cut rates dramatically – stabilising the US dollar and reducing the risk of extended dollar weakness requiring gold, silver or bitcoin to serve as alternative store of value. We don’t view Warsh as an eternal hawk however – he is a supporter of Trump and of regime change at the Fed. Despite being negative on quantitative easing (a central bank policy of buying bonds to inject money into the economy and lower long-term interest rates), we expect him to be more supportive of rate cuts than his predecessor.

The trade on precious metals had become very crowded in recent weeks and months and it is no surprise to see some profit taking at the first sign of a correction. We expect to see continued volatility in these markets – there remain many good reasons to hold these assets within a portfolio, particularly at times of heightened geopolitical uncertainty and significant industrial demand.

Steady as she goes – a relatively benign economic picture

The Fed left its benchmark rate unchanged in the 3.50% to 3.75% range, as had been widely expected. The Fed’s statement highlighted solid economic activity and described inflation as ‘somewhat elevated’. Chair Jerome Powell emphasized a meeting-by-meeting approach to future rate decisions, indicating that he does not view the current rate as highly restrictive.

Consumer confidence, as measured by the Conference Board, fell sharply in January to 84.5 – the lowest since May 2014 – reflecting weaker sentiment about the economy and labour market. Initial jobless claims were 209,000 for the week ended 24 January, slightly below the prior week but above estimates. Continuing claims dropped to 1.83 million, the lowest since September 2024. Durable goods orders rebounded 5.3% in November after a 2.1% decline in October.

The eurozone economy grew 1.5% in 2025, outpacing the previous year and European Commission (EC) forecasts. Q4 GDP rose 0.3%, with Germany, Spain, and Italy driving growth. The EC’s sentiment indicator climbed to 98.2 in January, signalling improved confidence across most sectors. Germany trimmed its 2026 growth forecast to 1.0%.

With corporate earnings season in full swing and generally strong results supporting slightly bloated multiples, continued resilience on the macro front should calm market jitters. Very strong returns for equity markets in recent years should be considered when forecasting future returns from current levels. We broadly expect the current momentum to persist in the short-term, but movements in precious metals markets this week serve as a reminder that popular trades can reverse very quickly.

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The week ahead

Economic indicators: US Manufacturing PMI (Monday); Non-Manufacturing PMI (Wednesday) and Nonfarm Payrolls and Unemployment (Friday)

We expect more of the same – solid yet unspectacular, with a fairly resilient US economy continuing to move along steadily. Consensus is for both manufacturing and non-manufacturing to be in expansionary territory at 51.9 and 52.5 respectively. Unemployment is expected to remain constant at 4.4%.

Bank of England and European Central Bank rate decisions (Thursday)

Both are expected to hold rates.

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