Precious metals plunge from high levels: the market truth behind the one-day reversal of platinum and palladium

The precious metals market has experienced a dramatic reversal. After two days of strong gains, platinum and palladium both plunged on January 7. Spot platinum fell over 3% to $2,340.95 per ounce, and spot palladium dropped more than 3% to $1,742.0 per ounce. Behind this reversal, the market is reassessing the demand for geopolitical safe-haven assets and the concentrated release of high volatility risks.

From Rise to Fall, How Big Is the Contrast

This turnaround happened very quickly. Just two days ago, these two precious metals were market favorites.

From January 5 to January 7, these two assets experienced a complete cycle from sharp rise to retracement. This is not an ordinary intraday fluctuation but a clear signal of a reversal.

Why Did Geopolitical Safe-Haven Demand Suddenly Cool Down?

The driving force behind this rally was clear: U.S. military actions against Venezuela triggered global geopolitical risk concerns, boosting demand for safe-haven metals. Gold returned to $4,400, and silver, platinum, palladium, among others, also rose accordingly.

However, according to the latest news, UBS Global Macro Strategy team pointed out a key issue in their research report: this surge in precious metals, especially gold’s rally, was not driven by independent positive factors for gold itself but rather “riding on the coattails of the explosive gains in silver, platinum, and palladium.” In other words, market enthusiasm may have been somewhat excessive.

Volatility spikes ring alarm bells

What is even more concerning is that the volatility of precious metals has soared to levels seen at the outbreak of the Russia-Ukraine conflict. This high volatility is weakening gold’s appeal as a “stabilizer” in investment portfolios. When the safe-haven asset itself is so volatile, it loses its safe-haven status.

UBS also pointed out that the relationship between gold and real interest rates has broken down, which is usually a sign of a correction. The failure of market models, combined with soaring volatility, has become the biggest short-term risk factor.

Overextension effects begin to show

From a time series perspective, this rally in precious metals started on January 5 and began to decline in less than two days. This suggests that the market’s pricing of geopolitical risks may have been too rapid and aggressive, with traders taking profits at high levels. Once the initial safe-haven demand was satisfied and no new fundamentals supported further gains, prices naturally reverted toward equilibrium.

Long-term trend remains unchanged; short-term correction is normal

It is worth noting that this retracement does not mean that precious metals have lost their upward momentum. In 2025, the metals and chemical sectors saw gains of up to 147.91%, with silver, platinum, and gold all shining. This reflects the long-term preference of global funds for hard assets to combat inflation.

While UBS warns of short-term risks, it still maintains a long-term bullish target of $4,750 per ounce for gold and states that conditions for a significant decline (over 20%) are currently not present. Factors such as ongoing central bank gold purchases, diversification needs, and ETF inflows still exist.

What to Watch for Next

In the short term, the recent pullback in platinum and palladium is a normal adjustment in a high-volatility environment. The market needs time to digest the previous gains and wait for new driving forces.

From a macro perspective, the Fed’s rate cut expectations for 2026, further developments in geopolitical situations, and central banks’ gold buying trends will be key factors influencing the future trajectory of precious metals. Especially, the Fed’s policy stance will directly impact real interest rates, which in turn affect the attractiveness of non-yield assets like gold.

Summary

This reversal in precious metals reflects a rational correction amid short-term high volatility. Although geopolitical safe-haven demand boosted prices, this overextension was rapid. In the long run, global demand for hard assets remains, but in the short term, volatility risks should be watched carefully. For investors, it is crucial not to be misled by short-term large fluctuations but to focus on the real changes in fundamentals—such as Fed policies, geopolitical developments, and central bank actions—as these are the key factors determining the medium- and long-term trends of precious metals.