In the history of the silver market, prices had traded above $40 an ounce for only a handful of brief periods before last year. On Friday, exhausted traders watched in shock as the precious metal plunged by that much in less than 20 hours.For weeks, traders across the metals world have spent their nights glued to screens as prices for everything from gold to copper and tin seemed to break free from the gravity of supply and demand fundamentals, spurred higher on a wave of hot money from speculators in China.And then, in just a few hours, the rally reversed into one of the most dramatic crashes ever seen in commodity markets. Silver’s 26% plunge on Friday was the biggest on record, while gold dropped 9% in its worst day in more than a decade. Copper traders were already reeling after a sudden spike past $14,500 a ton that unravelled just as fast.“In my career it’s definitely the wildest that I have seen,” said Dominik Sperzel, the head of trading at Heraeus Precious Metals, a leading bullion refiner. “Gold, it’s a symbol of stability, but such a move is not a symbol of stability.”While the trigger for Friday’s crash was the news that US President Donald Trump planned to nominate Kevin Warsh to lead the Federal Reserve, which sent the dollar higher, many had been warning that the metals markets were overstretched and due for a correction following weeks of relentless surges. Still, the speed and scale of the drop was breathtaking, particularly for a market as large and liquid as gold.Metals traders in Europe and the US have been working around the clock, unwilling to miss the Asian trading day when many of the sharpest moves have taken place — and even frantically trading through long-distance flights. At the world’s biggest coin conference taking place in Germany last week, executives stood staring at their phones, watching in silence as the crisis unfolded.“Parabolic”, “frenzied” and “untradeable” were all descriptions of the market on Friday, wrote Nicky Shiels, head of metals strategy at MKS PAMP SA. January 2026, she said, would go down as “the most volatile month in precious metals history”. Gold’s rally has been building for a number of years, as central banks expanded their holdings as an alternative to the dollar, and accelerated last year as western investors piled into the so-called debasement trade.But the gains have taken on a more frenzied pace in recent weeks, driven by a wave of buying from Chinese speculators — from individual investors to large equity funds venturing into commodities — that has lifted metals from copper to silver to fresh records. As prices surged, trend-following commodity trading advisors piled in, adding more froth to the rally.“We had identified about three or four weeks ago that it turned into a momentum trade, not a fundamental trade,” said Jay Hatfield, chief investment officer at hedge fund Infrastructure Capital Advisors. “We were just riding it, waiting for this type of thing to happen.”With concerns over the independence of the Fed and geopolitical confrontations from Venezuela to Iran capturing the headlines, the rally in metals became a symbol of some investors’ growing distrust of the US dollar.As metals’ upwards momentum drew more and more buyers, gold and silver fever gripped shoppers from China to Germany — in scenes reminiscent of 1979-1980, the only other time in modern history that the markets have seen such dramatic swings in price.“We are sold out in certain bar sizes, weeks in advance and people they still buy,” said Sperzel of Heraeus, who said his company is operating at maximum capacity to try to meet the demand. “People are queuing for hours in front of these shops in order to buy products.”The price moves have been most dramatic in silver, a relatively tiny market with annual supply worth just $98bn at current prices, compared with $787bn for gold.On Friday, iShares Silver Trust, the largest exchange-traded fund backed by silver known by its ticker SLV, recorded more than $40bn in turnover. That made it one of the most traded securities on the planet, when just months ago it would rarely see more than $2bn traded.Activity in options, which have become increasingly popular with retail traders in recent years, was similarly feverish.Seen by some investors as a cheap way to bet on market rallies, posts on the Reddit groups that had helped power previous retail surges into silver showed the gains of over 1,000% that could be made from betting on silver’s rapid climb. The biggest gold and silver ETFs each saw record open interest and trading volumes on call options in recent weeks, and the volume of call options on SLV exceeded that of the main ETF that tracks the Nasdaq 100 index of tech stocks.When there are many outstanding calls it sets the conditions for a squeeze, as dealers rush to hedge their positions by buying the underlying asset when prices start moving up, contributing to further price moves.“As we squeeze up, they have to mechanically keep buying more,” said Alexander Campbell, former head of commodities for Bridgewater Associates. “And that would explain why we go up so fast, and down so fast.”Trump’s comment that the under-pressure dollar was “doing great” on Tuesday night triggered a final frenzy of metals buying, pushing prices to new records. By Thursday, gold reached $5,595 an ounce, silver topped $121 and copper hit $14,527.50.The first sign of a reversal came later Thursday, when the dollar turned higher as US markets opened and gold suddenly plunged — at one point dropping more than $200 an ounce in about 10 minutes.Prices briefly stabilised, but then Bloomberg and other news organisations reported that Trump was planning to nominate Warsh as the next Fed chair. Where previously the Asian morning session had reliably driven prices higher — as bleary-eyed European traders watched on in astonishment — this time, Chinese investors took profits. The seeds of Friday’s dramatic crash were sown.“China sold and now we’re suffering the consequences,” Campbell said.What comes next may once again depend on China. Investors will be watching closely for when trading opens in Shanghai, to see whether Chinese demand for metals can be revived after the shock selloff. A 16-19% daily limit on price moves for various silver contracts on Chinese exchanges means Shanghai’s prices may need to play catch-up.Still, the pullback ahead of the Lunar New Year, a traditional buying season, may offer an entry point, with retail investors who had missed the rally waiting to step in.In Shuibei, a major bullion trading hub, tightness in silver has eased somewhat, with more selling than buying over the weekend, according to traders. But there are no signs of panic selling, and Shuibei silver prices are still trading at a premium to exchange contracts, they said.As retail interest simmers, several Chinese banks on Friday announced fresh measures to curb risks tied to retail gold accumulation products, following a series of similar moves over the past year.China Construction Bank said it will raise the minimum deposit amount from today and urged investors to heighten risk awareness, while Industrial and Commercial Bank of China said it will implement quota controls for its Ruyi Gold Savings service during holidays. Exchanges have also taken several steps that could rein in the broad rally in metal markets globally.“Gold is relatively strong; I see a lot of dip buyers coming in the past two days to purchase jewellery and bars before Lunar New Year,” said Liu Shunmin, head of risk at trader Shenzhen Guoxing Precious Metal. “Whereas for silver, there’s a strong inclination to stand on the sidelines.” - Bloomberg
