Gold and silver prices plummeted after reaching all-time highs, abruptly halting a steep upward trend in the precious metals market. Gold futures experienced a significant decline of 4.5%, settling just over $4,340 per troy ounce, while silver futures dropped a staggering 8.7% in a single day, marking their steepest fall since 2021, after earlier touching $80 per ounce.
Traders faced heightened anxiety going into Monday’s trading session following the Chicago Mercantile Exchange’s decision to increase margin requirements on silver futures. This move prompted highly leveraged traders to either inject more capital or liquidate their positions.
As a backdrop to these developments, China, recognized as the third-largest silver-producing nation, is poised to introduce export restrictions beginning in January, which has raised concerns about supply amid the growing demand driven by the rapidly evolving AI industry. Elon Musk commented on this situation over the weekend, expressing his worries on the social media platform X, stating, “This is not good. Silver is needed in many industrial processes.”
According to the Silver Institute, a nonprofit trade organization, nearly 60% of silver is utilized in industrial applications. Silver is lauded for being the most effective conductor of electricity among all metals and plays a crucial role in solar panels, electric vehicles, and data center server boards. Michael DiRienzo, president and CEO of the Silver Institute, emphasized its importance, saying, “It’s vital for electronics and computing. It’s used in almost everything that has an on and off switch.”
The current market dynamics for silver reflect a structural deficit that has persisted for five years. The metal was listed as a critical mineral by the U.S. government in October, raising potential concerns about tariffs and trade barriers.
Despite difficulties in the recent market, precious metals have enjoyed a remarkable year overall, with gold’s price surging by 67% due to strong demand from central banks and a softening dollar. Silver, benefiting from its smaller market size, has outperformed with a remarkable 150% increase, primarily driven by its industrial applications and supply issues. Copper and platinum have also reached record highs this year.
However, some analysts remain cautious about the rapid rise of gold and silver prices. Mike McGlone, a senior commodity strategist at Bloomberg Intelligence, warned of a possible reversal, referencing historical patterns that followed similar price surges in the past. “When it gets this stretched, be careful,” he advised, suggesting that investors should consider profit-taking.
The overall outlook indicates a complex interplay of factors affecting precious metals, with industrial demand continuing to grow even amid recent market corrections.