Silver clawed back most of Monday’s heavy sell-off, rebounding after its biggest one day fall in more than five years as an ongoing supply shortfall kept the metal on course for a 33% gain for the month.
Spot silver briefly pushed back above US$77/oz on Tuesday (Wednesday AEDT), after sliding 9% in the prior session. Gold also ticked higher after suffering its steepest decline in two months.
Technical factors influence Monday's drop
Monday’s drop was driven largely by technical factors rather than a shift in underlying demand, with higher exchange margins and signs the rally had become overstretched prompting profit-taking in thin liquidity.
“The sell-off was largely technical: early profit-taking on precious metals’ recent spike, leveraged long positions being unwound, and tighter margin requirements adding pressure,” Pepperstone Group strategist Dilin Wu said. “The fundamentals haven’t changed.”
Some exchanges moved to reduce risk amid the volatility, lifting margin requirements for certain Comex silver futures from Monday. Higher margins force traders to lodge more cash to maintain positions, which can trigger position reductions or forced exits among leveraged speculators.
China driver
China has also been an important driver of recent price moves.
Strong December buying in the Shanghai Gold Exchange’s silver contract sent local premiums to a record, pulling international benchmarks higher. The surge was intense enough that China’s only pure-play silver fund stopped taking new investors after repeated risk warnings were ignored.
1979
Despite the pullback, gold and silver were still tracking toward their strongest annual gains since 1979, supported by central-bank buying, ETF inflows and three consecutive rate cuts from the US Federal Reserve. Lower interest rates typically support commodities because they offer no yield.
Silver’s latest jump follows a squeeze in London about two months ago, when ETF inflows and exports to India further depleted already-low inventories. While London vault holdings have since increased, a large share of available metal remains in New York as traders await the outcome of a US investigation that could result in tariffs or other trade restrictions.