by Gary Alexander
February 3, 2026
Through last Thursday’s open, gold and silver were soaring to new record highs, by giant steps, with gold reaching $5,586 at its peak, then sinking to $4,700 the next day and closing at $4,670, losing 16%.
Silver, as usual, made more powerful moves on both the upside and downside, reaching $121 at one-point on Thursday, then careening down to $74 Friday before closing around $78, down 35%.
This means the bubble has popped, right? Silver and gold will once again decline, as in 1980. Well, not necessarily. Recall the 1979-80 surge, based on high inflation and a failed silver market corner causing a bubble high. There is no high inflation or market corner going on now. And this time around, the metals were clearly due for a correction but no prolonged crash, due to the new fundamentals of central bank gold buying, silver shortages, failing paper-currencies, chronic deficits and much lower inflation.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Consider a similar gold decline three-months ago, and then the rapid recovery fueled by bargain hunters. From October 20 to October 30, gold fell 10%, from $4,360 to $3,920 but it quickly recovered to $4,200. As usual, silver declines and recovered by greater percentage swings, falling from $53 to $46 in October (and from $78 to $70 after Christmas), then shooting up over $120 in January. In these recent cases, gold and silver investors clearly bought more on dips, and they should continue doing the same this time, too.
Despite last Friday’s sudden decline, gold still rose 9% in January and silver rose 11.6%, even though their gains through Thursday’s peak were much higher. In the last year, silver is up 144% and gold is up 68%, compared with average 15% gain for stocks. Gold only retreated to where it was two-weeks ago.
The reasons for Friday’s collapse – let’s call them “excuses,” for weak hands looking for a reason to sell – the first impetus came when President Trump nominated a monetary fundamentalist, Kevin Warsh, as the next Fed Chairman. To traders, this choice (long expected) implied a monetary landscape healthier (for the dollar) over the long term. The second torpedo struck on Friday, when the Producer Price Index (PPI) came out hotter than expected with a 0.5% monthly rise (a 6% annual rate), implying fewer rate cuts by the Fed – at least until the new monetary sheriff takes control in June. Oddly enough, high inflation implies fewer rate-cuts, so gold and silver declined on… higher inflation? Go figure!
The War Between Gold and Paper Money (Since 1690) – This Week in History
As usual, I take a longer approach to monetary issues than sweating over the daily moods of traders.
Limiting myself to this week in history, the war between gold and paper money has been going on for centuries. Paper money came to America on this date in 1690. Until then, the colonies dealt primarily in silver and gold coins or for smaller purchases, their “decrepit coppers,” but on February 3, 1690, the Massachusetts colony authorized the first official paper-currency issued in the Western Hemisphere.
Europe loved their central banks, but independent Americans were slow to accept any Wizard of Oz swapping stored metals for paper substitutes. The First Bank of the United States failed after 20-years, then the second Bank of the United States, acting more like a central bank than the first-edition, closed its doors on February 4, 1841, after a contentious 25-year history following the first central bank’s demise.
In late January 1848, gold was discovered in California, giving birth to a new major series of gold-coins. Then, 30-years later, in February 1878, the Bland-Allison Act (named after Representative Richard P. Bland and Senator William B. Allison), mandated the U.S. Treasury to purchase $2 to $4-million worth of silver each month to be coined into silver-dollars, starting with the classic Morgan silver-dollars:
The war between gold, silver and paper came to a head in two-consecutive February weeks in 1894-95:
At 9:30 on February 5, 1894, J.P. Morgan stormed into President Cleveland’s White House office and demanded an audience. After cooling his heels while Cleveland called the Treasury for details on what this invasion might mean, Morgan was ushered in. By now, the U.S. only had $9-million in gold to meet claims, and there were $12-million in current drafts against a shrinking supply, so President Cleveland sheepishly asked Morgan, “Well, sir, what would you suggest?” This comment passed the power of the purse from the White House to Morgan and Wall Street. In short order, Morgan saved the Treasury with an infusion of gold from London. From 1895 to his death in 1913, Morgan served as America’s central banker – and he did a better job than the Federal Reserve did in its first 20-years, from 1913 to 1933.
A year later, on February 3, 1895, J.P. Morgan was once again seen in Washington DC, emerging from the office of U.S. Assistant Secretary of the Treasury William Edmund Curtis, so a broker cabled the floor of the stock exchange, shouting, “We are saved.” Alas, any celebration was premature. On February 4, the “gold squeeze” reached its climax. During the last quarter of 1894, the Treasury shipped $84-million in gold abroad. By the end of January 1895, U.S. gold holdings were down to $45-million. Wall Street was placing bets on when the last ounce of gold would evaporate. On February 4, J.P. Morgan got a letter from the U.S. Secretary of the Treasury canceling all negotiations, and the gold hemorrhage continued.
To avoid the gold squeeze in Washington DC in early 1895, Morgan’s syndicate bought more gold from foreign investors, as in 1894. To finance this gold buying binge, President Cleveland sold $62-million in U.S. dollar bonds at 3.75% to Morgan’s syndicate. Morgan sold these bonds to foreign buyers at 12%, a tidy profit. Although this postponed the gold crunch and saved the Treasury, the public hated Cleveland’s willingness to hop into bed with Big Business, begetting a wave of editorial cartoons with a vicious tone.
On February 3, 1913, the 16th Amendment (income tax) passed, while lame duck president William Taft was awaiting Woodrow Wilson’s inauguration a month later. Then, J.P. Morgan died in March. The Federal Reserve was created to replace Morgan and President Wilson signed income taxes and the Fed into law.
On February 5, 1934, the Dow recovered to 110.74 after FDR devalued the dollar 41% in gold terms on his birthday, January 30, and the market loved this move. The Dow rose 169% in 18-months, and 288% in FDR’s first-term. His second-term reversed those gains, as the Dow fell under 100, losing almost 50%.
Inflation returned in February 1946, after World War II price controls were released at the end of 1945. The CPI gained nearly 20% 1946, despite new President Harry Truman creating the Office of Economic Stabilization (OES) in a vain attempt to keep a lid on consumer prices and ensure a smooth transition to peacetime. Truman picked Chester Bowles, a veteran FDR New Dealer who had previously run price controls at the Office of Price Administration (OPA), to run the OES. (During World War II, Richard Nixon worked for Bowles at the OPA, and he later issued wage and price controls in August of 1971).
And finally, since we monitor the Fed’s interest rate decisions as today’s economic side show, it was on Friday, February 4, 1994 when Alan Greenspan shocked Wall Street by launching a year-long pre-emptive strike against inflation by issuing the first of seven interest rate hikes. When Greenspan’s Fed surprisingly raised rates on February 4, 1994, the market careened down 96.24-points (-2.5%), from 3965 to 3869. Then it kept falling. It took well over a year for the market to return to its highs (set January 31, 1994). President Clinton fumed at the Fed’s war against “phantom inflation,” as the dismal 1994 stock market may have fueled the Republican Revolution in November 1994, taking over Congress in 1995.
I’ve just listed a small sample of this week in history – it’s a long and ongoing war between paper money and gold. This war is not over, but gold retains the high ground, still up over 100-fold since Nixon closed the gold window in 1971 – and up over 200-fold since FDR devalued the dollar in 1934 – 92-years ago.
Don’t count gold out yet, unless America suddenly stops its deficit spending and dollar devaluation.
All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Is Inflation Returning – or is Deflation a Greater Threat?
Income Mail by Bryan Perry
Kevin Hassett’s Base Case for an Economic Supply Shock
Growth Mail by Gary Alexander
What’s Behind the Surge (then Collapse) in Gold and Silver?
Global Mail by Ivan Martchev
The Stock Market is Worried about Iran
Sector Spotlight by Jason Bodner
What A Stock Market Rotation Looks Like
View Full Archive
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About The Author
Gary Alexander
SENIOR EDITOR
Gary Alexander has been Senior Writer at Navellier since 2009. He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks. For the previous 20-years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.
Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s. He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division. Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander
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