Former Federal Reserve Chair William McChesney Martin said the role of the central bank was to take away the punchbowl just as the party gets going. On that basis, Kevin Warsh has already scored by apparently puncturing a bubble in precious metals by virtue of his mere nomination by President Donald Trump to lead the Fed.
It’s probably too early to tell what Warsh’s policy will be or even if his nomination will be confirmed. But his historic record of wanting to shrink the Fed’s balance sheet was apparently enough to trigger a reversal
of the so-called debasement trade, which has sunk the dollar and supercharged precious metals in recent months. That led to massive drops for both gold and silver, the latter suffering its worst one-day drop since 1980.
The move was almost certainly an overreaction. Warsh is still expected to favor interest-rate cuts, in line with Trump’s policy goals, which should benefit gold over the long term. But with plenty of borrowed money going into speculative trades—especially silver—it didn’t take much to cause a stampede for the exits, especially with commodity exchange CME Group also raising margin requirements on various metals. And spare a thought for those relying on “digital gold” in the form of Bitcoin, which hit a 10-month low over the weekend.
The effect of a mass deleveraging looks set to bleed over into stock markets, and metals aren’t the only crowded trade susceptible to being unwound. Nvidia apparently putting its investment of up to $100 billion in ChatGPT-developer OpenAI on ice could cast a shadow over the entire artificial-intelligence sector. Earnings from Google-parent Alphabet and Amazon.com this week will be a further test for the AI trade, after Microsoft was punished last week for underwhelming cloud-computing growth.
The long-term implications of Warsh’s nomination and whether he will be an effective Fed chair remain to be seen. But the short-term reaction is a reminder that every crowded
trade fueled by the punchbowl of borrowed money is susceptible to a sudden reversal.
—Adam Clark
***Join Barron’s senior managing editor Lauren R. Rublin and senior writer Paul R. La Monica today at noon when they talk to John Hathaway, a veteran gold analyst and portfolio manager at Sprott Asset Management USA, about metals, miners, and more. Silver
was 2025’s best-performing asset, and gold wasn’t far behind. What is behind the monumental rally in precious metals, and how long can it last? Sign up here.
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This Week’s Job Report Could Come With a Shock
A prominent Wall Street strategist sees the potential for a shock coming with this week’s jobs report for January. Steve Englander, Standard Chartered’s head of Global G10 FX Research and North American Macro Strategy, says it’s possible the report comes in 10,000 below the expected 65,000.
- January’s report will include annual benchmark revisions, he said, plus a modified model that aims to reduce overstatements of job growth. He says this could lead to a significant downside surprise on Friday. The data since April 2025 will be revised using the same model, he said.
- Englander said the consensus outlook that says employers added 65,000 jobs last month reflects a moderate rebound in private hiring and persistent overstatement of a measure called the Birth-Death model, which is the one being modified. Federal Reserve Chair Jerome Powell has suggested overstatement by 60,000.
- If the estimates for overstatements are corrected in Friday’s data, private payrolls likely contracted 30,000 in the fourth quarter instead of growing by 30,000, Englander said. Overall, he said, jobs would have averaged a negative 83,000, reflecting cuts by the Department of Government Efficiency.
- For full-year 2025, nonfarm payroll growth may be revised down from the current estimate of 61,000 to zero or lower, Englander said. Average growth for the last nine months of 2024 may be revised down to 60,000 from 130,000, based on what was indicated by the preliminary revisions.
What’s Next: A sharply lower jobs number could put pressure on the administration, which has been positioning its policies as alleviating the affordability issues affecting households. But polling indicates sinking job approval for President Trump. A Pew Research poll puts his approval at 37%, down from 40% last fall.
—Liz Moyer
Lawmakers Contend With Government Shutdown 2.0
Lawmakers are again racing to end a federal government shutdown that started on Saturday, with House votes on some measures poised to happen as early as today. Democrats are fighting funding for the Department of Homeland Security after the fatal shooting of two Americans in Minneapolis by federal agents.
- House Speaker Mike Johnson told NBC News he was confident they could pass a package by Tuesday, though he acknowledged he has very little room to maneuver with a one-vote majority. Democrats suggested on the Sunday morning talk shows they would resist a fast-track process.
- The Senate approved five of six spending bills late last week, temporarily extending funding for DHS for two weeks while lawmakers hash out differences. Some Democrats have said more funding for Immigration and Customs Enforcement should be suspended.
- Prediction markets see a short government shutdown. Kalshi puts a
76% chance on funding being restored by Thursday. Polymarket puts the highest chance on it lasting four days, or ending Wednesday (at 98%). Polymarket has a data-sharing deal with Dow Jones, the publisher of Barron’s.
- A Friday night memo from Office of Management and Budget Director Russ Vought told employees to begin the shutdown process when they next report to work. That process of redirecting mail and backing up data servers takes about half a day—with another half day to restart.
