Just as a large number of individual investors began to flock in, the red-hot rally in metals and mining stocks came crashing down.
Last Friday, prices for gold, silver, and copper collectively plummeted, with a rebounding US dollar being a partial trigger. This sell-off abruptly ended the fervent rally that had previously driven prices to successive record highs. According to data from Vanda Research, on the preceding day, retail investors made a net injection of approximately $171 million into the iShares Silver Trust (SLV), setting a historical record for single-day net inflows by this group.
This fund experienced its largest single-day drop since its inception in 2006 on that Friday, while the NYSE Arca Gold BUGS Index also suffered its sharpest decline since 2008. The materials sector became the worst-performing group within the S&P 500. There is now market concern that the increasing participation of this retail cohort—known for chasing short-term gains and potentially fickle positioning—could trigger even more violent market swings.
Dave Mazza, CEO of Roundhill Investments, stated, "Once a certain type of trade evolves from a portfolio ballast into a meme-stock-like speculative target, volatility increases dramatically. If everyone rushes in fully invested all at once, then when sentiment shifts, they will all sell simultaneously, creating a negative and powerful feedback loop."
The popularity of the silver ETF rivalled that of Nvidia.
The catalyst for last Friday's market plunge was former President Trump's nomination of the perceived relative hawk Kevin Warsh for the next Fed Chair. That day, the US dollar recorded its largest gain since last May, while gold prices fell sharply by 9%, and silver plummeted over 26%.
The reasons behind the recent sharp surge in dollar-denominated precious metals included a persistently weaker US dollar, escalating geopolitical tensions, and increased investment appeal for silver driven by its growing industrial demand in the technology sector. Furthermore, with the momentum of large-cap tech stocks stalling this year, speculative capital from the retail crowd has turned its attention to the frenzy in the metals market, further fueling the price advance.
Retail trading activity has skyrocketed.
A signal of the rising retail participation is that, during the five trading days ending January 27th, the iShares Silver Trust became the fifth most active security in stock and options trading at Interactive Brokers, with trading heat roughly double that of the previous week. Steve Sosnick, Chief Strategist at Interactive Brokers, indicated that by last Friday, the fund's trading activity had climbed to the second position.
Christopher Harvey, Head of Equity and Portfolio Strategy at CIBC Capital Markets, commented that retail participation in gold and metals trading "only exacerbates market volatility; this will cause anxiety for some investors, while allowing others to profit from it."
In a research note dated January 29th, Steven DeSanctis, an equity strategist at Jefferies, pointed out a "new development" in the firm's proprietary retail favorites basket: eight stocks from the metals and mining sector had entered the list.
The sell-off may conceal strategic entry opportunities.
Alexander Altmann, Global Head of Equity Tactical Strategy at Barclays, believes last Friday's sell-off hides a strategic opportunity—the industrial metals sector, caught up in the turmoil, presents a prime entry point. Positive catalysts for this sector include the ongoing build-out of AI infrastructure and fiscal expansion policies by various governments, factors that could potentially drive industrial metal prices higher.
According to Barclays data, the Bloomberg Industrial Metals Subindex (BCOMIN) has already surged approximately 30% from its recent lows. However, in previous metals bull markets since the 1990s, the average gain for this index from trough to peak has been around 170%.
Altmann stated, "In my view, the spillover of this sell-off across the entire metals complex is a godsend; this pullback is worth entering for strategic positioning."
He added, "Importantly, industrial metals stocks have lagged behind precious metals stocks—and retail investors are largely crowded into the precious metals space. This disparity makes the trading opportunity in industrial metals particularly attractive."
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