Editor’s Note
This analysis examines the recent historic crash in silver prices, which has exposed acute market vulnerabilities and renewed concerns about speculative excesses. As investors navigate extreme volatility, the article explores the structural questions now facing the precious metals market.
The silver price came under massive pressure again on Friday. Following a historic price crash, extreme volatility, and acute liquidity shortages, investors are seeking guidance. While gold remains relatively more stable, silver is once again demonstrating its susceptibility to severe price fluctuations. The latest plunge raises fundamental questions about market structure, speculative excesses, and short-term stability.
The silver price continued its plunge after already crashing by around 20% on Thursday. As Bloomberg reports, an acute lack of liquidity led to extreme price swings in a market that has so far been unable to find a solid floor.
In early Asian trading, the spot price for silver temporarily fell to just $64 per ounce. This puts the price 47 percent below the record high of $121 from January 29th and has wiped out all gains from the spectacular rally of the previous month. A shrewd trader placed a record short position betting on falling prices – and is now being rewarded for it.
Gold also came under selling pressure for the second consecutive day, falling temporarily to $4,654. This puts the gold price nearly 17% below its recently marked record high.
The bull market for precious metals, which has lasted for several years, accelerated significantly last month. Triggers were rising geopolitical risks, growing doubts about the independence of the US Federal Reserve, and speculative buying, particularly from China.
By the end of January, investors had built up substantial positions in precious metals. Many used leveraged exchange-traded products and call options. However, this aggressive positioning proved fragile. At the end of last week, the rally came to an abrupt halt: silver recorded its largest single-day loss in history on January 30th, while gold suffered its sharpest decline since 2013. Since then, extreme uncertainty and volatility have characterized market activity.
The significantly more liquid gold market has weathered these turbulences better than silver so far. Numerous banks and asset managers reaffirmed their long-term positive outlook for gold this week. A fund manager at Fidelity International, who had sold his positions before the crash, stated he was ready to buy again. Deutsche Bank even maintains its forecast that gold could rise to $6,000 per ounce in the long term.
On the spot market, the precious metals recovered after their renewed plunge. The silver price recently gained 2.4 percent to $72.56 per ounce (as of 4:10 AM London time). Gold rose 0.9 percent to $4,823.27. Platinum and palladium also recorded losses. The Bloomberg Dollar Spot Index, a measure of the strength of the US currency area, gained 0.1 percent and is up 0.8 percent on a weekly basis.
In the short term, the silver price remains characterized by uncertainty, thin liquidity, and high nervousness. Whether a sustainable stabilization occurs depends significantly on whether speculative positions continue to be unwound and whether the overall market environment calms down. Until then, silver is likely to remain vulnerable to further extreme swings.