Woofun AI reports that the "dollar depreciation trade" dominating Wall Street this year is collapsing under the weight of Federal Reserve Chairman Kevin Warsh's aggressive stance on price stability. This policy shift has triggered a dual pressure mechanism where a strengthening dollar and rising rate hike expectations have driven gold, silver, and Bitcoin below critical support levels simultaneously. On Wednesday, gold breached the $4,000 per ounce threshold for the first time in eight months, representing a 29% decline from its January record high of approximately $5,600. Silver followed suit, dropping below $60 per ounce after falling more than 50% from its peak of $121, while Bitcoin tumbled beneath $60,000 to hit a new low since the end of 2024.

Concurrently, the DXY index has risen 2.8% this month, closing at a level unseen in over 14 months and positioning itself for the largest monthly increase in nearly a year.

The catalyst for this dramatic market reversal occurred when Warsh prioritized price stability during a Federal Reserve press conference, reinforcing market beliefs that he would adopt a more aggressive anti-inflation posture. A stronger dollar renders dollar-denominated precious metals more expensive for foreign buyers, while rising rate expectations directly increase the opportunity cost of holding non-yielding assets. The logic underpinning the previous "dollar depreciation trade" relied on fears of fiscal excesses and central banks indulging inflation, which had previously propelled gold, silver, and Bitcoin higher. When Warsh was nominated as Federal Reserve chairman in January, gold immediately tumbled by more than 13% in a single day, marking the largest one-day decline in over forty years, while Bitcoin also collapsed. After a prolonged period of weakness, the dollar reversed course, and market prices clearly indicated that Warsh's hawkish stance was taken seriously from the very beginning.

Robin Brooks of the Brookings Institution argues that the root cause of the depreciation trade lies in improper fiscal policy, with monetary policy playing merely a supplementary role as policymakers are forced to print money to dilute unsustainable debt through inflation. This framework explains the market's hypersensitivity to the choice of Federal Reserve chairman and why Warsh's emphasis on price stability triggered such a drastic asset revaluation. Stephen Innes, executive partner at SPI Asset Management, stated that Warsh's first public appearance convinced the market of a more stringent anti-inflation approach. The S&P 500 index, a classic indicator of whether economic growth is driven by real expansion or currency depreciation, had already shown a significant turnaround three months ago, signaling that market confidence in the depreciation narrative had eroded.

Notably, the ceasefire agreement in the Middle East provided additional support for the dollar, accelerating this round of declines in precious metals which represents a dramatic reversal of the historic trends seen earlier this year when gold soared to $5,600 and silver broke through $121.

Nate Miller, vice president of product development at Amplify ETFs, highlighted that both strengthening yields and the dollar have increased the opportunity cost of holding metals. Silver, possessing a dual nature as both a precious metal and an industrial raw material, often experiences more severe declines during macroeconomic tightening than gold, explaining its sharp fall this time. Ben McMillan, chief investment officer at IDX Advisors, identified expectations of rate hikes and liquidity-driven selling as the "main culprits" behind gold's sharp decline, though he views the current correction as an "opportunity for long-term buying." Peter Grant, vice president and senior precious metals strategist at Zaner Metals, expects the next key support level for gold to be around $3,800 per ounce, with a likely rebound to $4,500 within the year, but noted that restoring confidence in new record highs requires a return above $4,800. The inverse relationship between Bitcoin's decline below $60,000 and the DXY hitting a 14-month high confirms the long-term negative correlation between the two assets.

Steven Englander, a strategist at Standard Chartered, noted that the gap between real and nominal interest rates has become the main driving force behind the dollar's strength since early May. He expects the Federal Reserve to keep interest rates unchanged, while the ECB still has room for a rate cut in the first half of next year, meaning the interest rate differential between the U.S. and Europe will continue to support the dollar and put Bitcoin under sustained pressure. Vincent Deluard of StoneX Financial warned that although the ceasefire in the Middle East has alleviated the impact on oil prices, inflation is not likely to return smoothly to the 2% target but will instead remain at a high level between 3.5% and 4% for a long time. Torsten Slok, chief economist at Apollo Global, proposed a counterintuitive scenario where a decline in oil prices could act as a tax cut, further stimulating already overheated aggregate demand and pushing up inflation, thereby providing grounds for the Federal Reserve to raise interest rates and adding pressure to the depreciation trade.

Mark Hackett, chief market strategist at Nationwide Investment Management Group, observed that a large and highly coordinated group of funds is shifting significant capital away from cryptocurrencies, meme stocks, and precious metals into semiconductor stocks. South Korean chip manufacturers such as Samsung Electronics and SK Hynix have become the primary destinations for this capital rotation. He told MarketWatch that the strengthening dollar is the trigger for the selling of precious metals, while changes in Federal Reserve policy expectations are the underlying reason for the dollar's strength, adding that "this is almost being used as an excuse for investors to sell their precious metals en masse." Woofun AI data shows that Micron's post-market quarterly report temporarily curbed selling sentiment in the semiconductor sector as revenue guidance exceeded expectations and profits were significantly better than anticipated. Its 12-month rolling profit quadrupled within two quarters, and its market cap rebounded to around $1.4 trillion after the report was released.

SK Hynix, which had previously faced selling pressure due to its announcement of focusing on producing low-profit margin DRAM memory chips, also saw a boost despite announcing a $29 billion initial public offering of its U.S. shares on the same day.

However, extreme volatility itself serves as a warning sign, as Larry McDonald of the Bear Traps Report pointed out that it is extremely rare for the market value of semiconductor stocks to fluctuate by more than $100 billion within a few hours. Historically, such volatility usually occurs near major market peaks or bottoms. BCA Research recommends ending the long-position strategy that has more than doubled so far this year, which involves buying into emerging market semiconductors and short selling the "Big Seven" tech companies that provide the infrastructure for cloud computing. BCA notes that the implied volatility of the South Korean Kospi index has exceeded its historical peak, a level that historically appears "at the bottom of a bear market rather than at a historical high," indicating that the current market trend is characterized by "highly speculative forces driving prices upward."

McDonald further warned that with the end of the month and quarter approaching, as well as the long U.S. holiday weekend, historical experience shows these times are often accompanied by large-scale capital shifts and a sluggish summer market. Intense new share offerings will consume the market's ability to absorb liquidity, and large-scale selling by insiders is often a precursor to a market top. For investors who still hold long positions in semiconductors, Micron's post-market strength may provide a relatively good opportunity to exit at a high price before potential volatility intensifies. The current landscape suggests that the sustainability of this chip-driven rally is increasingly doubtful as capital flows reverse direction. This marks a definitive end to the era where precious metals and digital assets outperformed traditional equities, signaling a return to risk-off dynamics driven by monetary tightening.