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Throughout market history, silver has rarely maintained values exceeding $40 an ounce for extended periods. Last Friday, exhausted traders witnessed something remarkable, the precious metal plummeted by that entire amount in less than a day.
Traders handling metals worldwide had spent recent weeks glued to their monitors overnight. Gold, copper, tin and similar commodities seemed disconnected from typical supply and demand patterns, driven skyward by heavy speculative bets from China.
The surge reversed violently. Within hours, one of commodities trading’s most severe crashes unfolded. Friday saw silver plunge 26%, an unprecedented single-day decline. Gold dropped 9%, recording its steepest fall in more than a decade. Copper had already experienced chaos after spiking above $14,500 per ton before collapsing equally fast.
News that President Donald Trump intended to appoint Kevin Warsh as Federal Reserve chairman sparked Friday’s collapse, strengthening the dollar. However, warnings had circulated for weeks that metal valuations had stretched too far and faced inevitable correction. Still, the velocity and magnitude of the downturn left observers breathless, particularly given gold’s substantial market size and liquidity.
European and American metal traders abandoned normal schedules, working continuously to avoid missing Asian trading hours where dramatic price movements frequently occurred. Some conducted frantic transactions during transcontinental flights. Attendees at Germany’s largest coin conference last week stood motionless, eyes fixed on mobile devices as the crisis developed.
Gold’s ascent began years earlier as central banks accumulated holdings to diversify beyond dollar reserves.
The climb accelerated last year when Western investors embraced the debasement trade strategy. Recent weeks witnessed intensified momentum, propelled by Chinese speculative activity, ranging from individual traders to equity funds entering commodity markets, lifting metals to unprecedented peaks. Trend-following algorithmic trading programs amplified the rally further.
Momentum trade replaces fundamental analysis
Jay Hatfield serves as chief investment officer at Infrastructure Capital Advisors, a hedge fund. “We had identified about three or four weeks ago that it turned into a momentum trade, not a fundamental trade,” he explained to Bloomberg. “We were just riding it, waiting for this type of thing to happen.”
Concerns surrounding Federal Reserve independence and geopolitical tensions spanning Venezuela to Iran dominated headlines. The metal rally symbolized declining confidence in dollar stability among certain investors.
Mounting enthusiasm drew increasing participants, creating gold and silver purchasing fever across China and Germany. The phenomenon mirrored 1979-1980, modern history’s only comparable period of extreme price volatility.
Heraeus operates at maximum production, attempting to satisfy demand, Sperzel noted. “We are sold out in certain bar sizes, weeks in advance and people they still buy,” he said. “People are queuing for hours in front of these shops in order to buy products.”
Silver experienced the most dramatic fluctuations. Its market remains relatively compact,current annual supply valued at merely $98 billion compared with gold’s $787 billion.
The iShares Silver Trust, the largest silver-backed exchange-traded fund trading under ticker SLV, processed over $40 billion on Friday. This positioned it among Earth’s most actively traded securities. Just months earlier, daily volumes rarely exceeded $2 billion.
Options activity, increasingly favored by retail participants recently, reached fever pitch. Reddit discussions documented returns exceeding 1,000% from wagers on silver’s rapid ascent. Major gold and silver funds achieved record call option open interest and volumes lately. SLV call option activity surpassed even the primary Nasdaq 100 technology index tracker.
Abundant outstanding call options create squeeze conditions. Dealers scramble to hedge exposures by purchasing underlying assets during price increases, fueling additional upward movement.
Tuesday evening, Trump characterized the pressured dollar as “doing great,” igniting final speculative buying. Thursday brought gold to $5,595 per ounce, silver past $121, and copper to $14,527.50.
Reversal signs emerged late Thursday as dollar strength returned and gold tumbled abruptly—shedding over $200 per ounce within approximately ten minutes.
Chinese profit-taking seals market fate
Brief stabilization followed. Then Bloomberg and other outlets reported Trump’s intention to nominate Warsh for Fed leadership. Chinese investors pursued profit-taking rather than continued purchases. Friday’s dramatic selloff took root.
Future developments may again hinge on Chinese activity. Shanghai trading commences Sunday evening New York time. Chinese exchange daily limits of 16%-19% on various silver contracts suggest Shanghai valuations require adjustment.
Ahead of Lunar New Year, traditionally a strong buying period, the pullback might attract sidelined retail investors seeking entry opportunities. At Shuibei, a significant bullion trading center, silver availability improved somewhat through weekend selling activity, traders reported. Panic selling remains absent, with Shuibei silver maintaining premiums over exchange contracts.
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