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Silver markets experienced their most dramatic collapse since 1980, plummeting 46% from record highs as precious metals traders scrambled to unwind what many are calling the most crowded trade in decades. The white metal’s spectacular reversal from ₹4,20,000 to ₹2,25,805 on MCX triggered circuit breakers and sent shockwaves through global commodity markets.
Fed Nomination Sparks Massive Selloff
The catalyst for Friday’s historic selloff came from an unexpected political development. US President Donald Trump’s nomination of Kevin Warsh as the next Federal Reserve Chairman sent precious metals tumbling as investors reassessed their bullish bets. Warsh’s reputation as an aggressive inflation hawk raised immediate concerns about tighter monetary policy ahead.
“Gold and silver prices fell sharply from their record highs after the US President selected Kevin Warsh as the next Fed Chairman. Investors reacted negatively because Warsh is considered more aggressive on interest-rate policy than earlier leaders,” explained Rahul Kalantri from Mehta Equities. The announcement strengthened the dollar and boosted Treasury yields, creating a perfect storm for dollar-priced bullion.
COMEX gold, which had touched highs above $4,900, crashed to the $4,580-$4,700 range, while silver’s fall from $121.6 to around $75-$85 represented the largest percentage drop since March 1980.
Technical Factors Amplify the Crash
Beyond the Fed nomination, several technical factors accelerated the precious metals rout. The CME Group’s decision to increase margin requirements came into effect Monday, adding fresh selling pressure to already strained markets. Gold futures margins jumped from 6% to 8% of contract value, while silver margins increased from 11% to 15% for standard accounts.
“This isn’t over,” warned Robert Gottlieb, a former JPMorgan precious metals trader. “The bottom line is that the trade was way too crowded.” The unwinding of record call option positions created mechanical selling pressure as dealers hedged their exposure.
MCX silver hit the 15% lower circuit limit at ₹2,25,805 per kilogram, while volatility forced the National Stock Exchange to revise its ETF pricing methodology. The exchange switched from T-2 to T-1 computation for circuit calculations after Kotak Silver ETF’s lower circuit appeared above Friday’s closing price, creating market confusion.
Chinese Demand and Market Support
Despite the carnage, signs of underlying demand emerged from key markets. Chinese buyers flocked to Shenzhen’s gold marketplace over the weekend, stockpiling jewelry and bars ahead of Lunar New Year celebrations. The Shanghai benchmark maintained a premium over international prices, suggesting domestic appetite remains intact.
“The combination of heightened volatility and the proximity of the Lunar New Year will prompt traders to trim positions,” noted Zijie Wu from Jinrui Futures. “At the same time, the pullback in prices is likely to support retail demand in China.”
Analysts identified key technical support levels that could determine the metals’ next moves. For gold, the $4,500-$4,400 zone represents critical support, while silver’s ability to hold above major moving averages suggests the correction may be technical rather than structural.
Market Outlook and Recovery Prospects
Market observers remain divided on whether the crash represents a healthy correction or the beginning of a deeper bear market. COMEX gold continues trading above major moving averages, with the ₹1,43,000-₹1,45,000 range acting as dynamic support for MCX contracts.
“Despite this, prices continue to hold above major moving averages, indicating that the ongoing correction is technical and orderly rather than trend-reversing,” said Ponmudi R from Enrich Money. The key question facing traders is whether Chinese retail demand and Western institutional buying can absorb the massive liquidation from leveraged positions.
With China’s markets closing for Lunar New Year holidays from February 16, the next week of trading could prove critical in determining whether precious metals can stabilize or face further dramatic declines.
Sources: The Hindu Business Line, Thestar, Mint, Euronews, Ahouseinthehills
