Silver prices, which had been setting new records daily, unexpectedly plunged on Monday. Gold and other precious metals also shifted to a downward trend.
According to the Financial Times (FT), the spot price of silver plummeted by nearly 9%, barely holding above 72 USD per ounce in the afternoon. This marked the steepest single-day decline since the onset of the COVID-19 pandemic in 2020.
The crash in silver price also impacted gold.
Gold’s spot price tumbled over 4%, barely maintaining a level above 4,300 USD per ounce.
Market analysts attributed the sudden decline to two primary factors: profit-taking following the recent steep rally and the Chicago Mercantile Exchange (CME) Group’s decision to raise margin requirements.
On December 26, the CME announced plans to increase margin requirements for various metal futures contracts, including silver and gold, effective Monday. Higher margin requirements increase costs for leveraged investors who borrow money to trade, potentially forcing some to liquidate their holdings to reduce exposure.
Rushabh Amin, a multi-asset portfolio manager at Allspring Global Investments, noted that increased margin requirements and low liquidity are affecting not just silver, but other precious metals as well.
However, Amin viewed the current price drop positively, describing it as a consolidation phase for further gains rather than a catastrophic crash.
Silver prices had been hitting record highs amid a weakening U.S. dollar and heightened geopolitical tensions. Spot silver, which traded at 50 USD per ounce in November, briefly surpassed 80 USD for the first time on Monday morning before the sudden collapse.
Analysts suggest that speculative demand is flooding into precious metals, including silver.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, noted that the silver price rally had taken on a parabolic shape, indicating that buying momentum had accelerated sharply. Hansen explained that despite the market’s upward trend, low margin levels made it susceptible to volatility, allowing speculative forces to easily enter the market.
Both gold and silver futures prices also experienced sharp declines that day.
February gold futures fell 203.30 USD (4.47%) from the previous trading day to 4,349.40 USD per ounce, while March silver futures plummeted 5.95 USD (7.71%) to 71.25 USD per ounce.
Platinum futures for February dropped 356.50 USD (14.39%) to 2,121.00 USD per ounce, and March palladium futures sank 332.80 USD (16.45%) to 1,690.50 USD per ounce.
Copper, a crucial component in artificial intelligence (AI) and power infrastructure, saw its March futures decline by 0.27 USD (4.60%) to 5.57 USD per pound.
Meanwhile, Tesla CEO Elon Musk emphasized in a post on his social media platform X on December 26 that silver is widely used across various industries, and that the sharp rise in silver prices is “not good.”
