Gold, Silver & a New Fed Chair | February 2026 Market Update

Full transcript:

Hello and welcome to this month’s Market Update for February 2026. My name is Steve Latham. I am the Chief Investment Officer for Bernicke Wealth Management. Today we’re going to be discussing the volatility in precious metals to start the year. And we’ll be touching on a little bit about the new Fed Chair nominee, Kevin Warsh. So let’s dive right into it.

Precious Metals Volatility to Start 2026

The volatility in precious metals has been quite high to start the year, but it really retraces back to the beginning of 2025 where gold and silver were going on a run that they hadn’t seen for decades. Gold and silver specifically here, have been seen as a safe haven to the United States dollar.

And generally speaking, whenever people are purchasing these metals, they’re doing it as a way to offset inflation. But really, what’s been happening here is they’ve been doing it as a way to offset the globalization efforts seen by the United States as a result of a potentially weaker dollar. Now, before we get into how the dollar correlates to gold and silver, let’s start with gold and silver in the price action themselves.

Options Activity and Speculation in Gold and Silver

What we can see in this chart here is going back to 2010. This is the options activity for gold and silver. And options contracts are simply bets on whether or not the price of gold or silver will go up or down. And the more options contracts there are outstanding, the implication is there is more activity, or at least more speculation around the price of gold and silver.

And so what we can see here is in 2020, during COVID, there was quite a bit of speculation around these metals, specifically silver, silver being the black line. And if you recall, silver really had a pronounced spike during that period of time and quickly cooled off thereafter. What we’ve seen here over the last 15 months or so is this pronouncement has really increased gradually up until it hit its peak just a few weeks ago.

That options activity, at least for silver, hit or exceeded, depending on the measure, that volatility that we saw in 2020. Gold, however, significantly exceeded the history of its open options activity going back since 2010.

Now, all this is really telling you is that there’s a lot of speculation in those metal markets, and those metals have become somewhat disconnected with the fundamental reality.

When you have this amount of speculation in an asset, whether it’s a stock, a bond, precious metals, commodities or otherwise, that tends to tell you that there’s a lot more sentiment driven action going on than anything to do with the fundamentals.

How Gold and Silver Are Valued

And now, speaking of the fundamentals, because gold and silver are hard assets, there’s no specific way to value them.

Simply valuing them is based off of who the next marginal buyer is going to be. If they’re willing to buy it at $5,001, then that’s what it’s worth per ounce. Generally speaking, like I said before, gold has had an inverse correlation with the United States dollar. When the dollar depreciates, that tends to mean gold goes higher in value.

The Dollar’s Relationship to Gold

And we can see this through the two charts that we have here in front of us. The top line here is the United States Dollar Index. And we can see, even though it has been somewhat volatile over the last ten years, it has traded somewhat in a range during that period of time. Yes, we saw a pretty big run up after COVID.

We’ve seen it start to draw down. And then at the beginning of 2025, because of some of the actions being taken by the administration, we’ve seen the dollar weaken back to a point where we hadn’t seen since 2022 and prior to that, 2020. Now, when we see the dollar weakening, the expectation is gold should appreciate because gold is purchased or valued in United States dollars.

That means if I have a foreign currency and my foreign currency can buy more of those dollars because the dollar is weaker, they can technically buy more gold because of the weaker dollar. And so that fundamental relationship between the valuation of the dollar, the directionality of the dollar, and the price of gold is measurable. And so it’s a little bit difficult to see going back ten years for the line of gold here.

Sentiment vs. Fundamentals

This is the share price of the GLD gold ETF. But you can see back in COVID years as the dollar depreciated, we saw gold start to ramp up. And as the dollar appreciated we saw gold start to go down. Now as the dollar continued to depreciate during this period of time we’ve seen gold ramp up. But what I want to point out here is just over the last 14 or 15 months, again, the price of gold has risen exponentially while the value of the dollar has really only faded.

And by some measures, it’s really been trading in a range during that period of time as well. So again, it’s a lot of sentiment that’s driving the market for gold. And silver and silver specifically tends to be a significantly more volatile precious metal than gold for a variety of reasons. But one of those reasons is an ounce of silver is about a fifth of the cost of the ounce, or, excuse me, 5% of the cost of an ounce of gold, depending on the day that you’re measuring it.

So it tends to be an easier metal to access. If you’re looking to get access to precious metals exposure in your portfolio.

Kevin Warsh: The New Fed Chair Nominee

Now shifting gears here a little bit during this period of time, and some would say the reason for the gold sell off and the silver sell off was a direct result of this person’s nomination as Fed Chair, Kevin Warsh.

And his name was put forward as the next Fed Chair nominee. Now, I put probably in the title because he has not gone through the Senate confirmation process. In all likelihood, he will pass. As far as we know, there’s nothing that should sideline him other than the current DOJ investigation against Jerome Powell. If that is dropped or at least moved to the Senate Banking Committee.

In all likelihood, the swing vote in the Senate Banking Committee would move towards approving Warsh, which would allow him a clear path through the Senate and then become the next Fed Chair.

Warsh’s Background and Views on the Fed Balance Sheet

Now, just a little bit of background on Warsh. He used to be a Fed Governor, around the Bernanke years, as Bernanke was the Fed Chair.

He really made a name for himself, supporting Bernanke, but also, talking a lot about how he felt the policy during those years was inappropriate because the Fed’s balance sheet was expanding so much. So Kevin Warsh is actually a proponent of reducing the Fed’s balance sheet, and that could have some implications for the overall asset pricing in the United States.

Currently, the Fed uses their balance sheet to add or reduce liquidity to the market. And generally speaking, the balance sheet increases whenever the market is feeling strains of liquidity, which again, is what we saw during 2020, in the COVID era. But now we’re seeing a sentiment shift. If Kevin Warsh is nominated or, excuse me, approved by the Senate, where he is likely to be a proponent of reducing that balance sheet, and that could create some financial strain amongst the day to day operations of banks and other money heavy companies.

Interest Rate Outlook

Now, he is also someone who believes interest rates should be lower. And in that way, we would expect interest rate cuts to continue to be a theme of this Federal Reserve, especially if we do see some negative economic data coming down the pipe. Right now, the market is still anticipating the next Federal Reserve rate cut to be in the June meeting.

And that June meeting, the rate cut is expected to be 0.25% again, although if we continue to see really good economic data, it’s entirely possible that that rate cut moves to the next meeting in July or even further down the road.

The Fed Chair Can’t Act Alone

Finally, though, one of the things to keep in mind, and this is something that we talked about, regardless of who the nominee was for the next Fed Chair to replace Jerome Powell, that Fed Chair cannot manage by edict.

He cannot set policy singularly. He is one that needs to make sure the other 12 voting members of the FOMC are on board, or at least a majority of those members are on board with the adjustments that they’re going to make to Federal Reserve policy. So if he wants to see interest rates lower, he has to get at least a majority of that 12 member voting committee to approve that. If he wants to see the balance sheet reduced,

same thing. He needs to make sure that there’s valid economic reasons that that would happen. And then also getting that 12 member committee to vote in the affirmative for that to become policy.

What’s Ahead

Now there’s still some time left before that happens. Jerome Powell’s term as Chair is not done until May. And the Senate is going to take some time to confirm.

So we’re going to continue to learn more about Warsh and his intentions as he moves through that confirmation process. But for now, we’re just going to keep our ear to the ground, see how the economy continues to evolve, see how the consumer continues to evolve and how that could all play into monetary and fiscal policy going forward.

If you have any other questions about the Federal Reserve, precious metals, or anything else related to the markets, please don’t hesitate to reach out. We’re always happy to answer them for you. Thank you.