Silver prices have plunged dramatically over a three-day selloff following a record-breaking surge, severely impacting the retail investors who fueled the initial rally and leaving traders stunned.
This volatile price action is reminiscent of the meme-stock frenzy during the COVID-19 pandemic—after hitting a peak above $120 per ounce last Thursday, silver prices crashed over 30%, only recovering 5% by this Tuesday.
While news of U.S. President Donald Trump's nomination of Kevin Warsh for Federal Reserve Chair served as one catalyst for the precious metals selloff—gold also fell 16%—traders indicated the speed and severity of the decline stemmed from a sudden reversal of the speculative fervor that had built in recent weeks.
A key driver behind silver's recent ascent has been speculative buying from retail investors, particularly in Asia, according to traders. Data from Vanda Research shows retail investors poured a record $1 billion into silver exchange-traded funds (ETFs) in January, making them the most exposed during this sharp decline.
"Silver has always been a 'death trap'," stated Rhona O’Connell, an analyst at Stone X. "The gains over the past few weeks had reached absurd levels—this was essentially a crisis waiting to happen."
It is estimated that ETFs tracking gold and silver—often nicknamed "gold on steroids" due to its higher volatility—have lost approximately $150 billion in market value since the market peak last week.
As last year's rally accelerated, a physical silver buying frenzy emerged in January, with national mints struggling to meet retail demand for commemorative coins and refineries working around the clock to melt down client-provided jewelry, silverware, and even old dental fillings to replenish silver supplies.
However, market participants noted that the speculative mania was most evident in financial assets linked to precious metals.
The popular silver ETF favored by retail investors (ticker SLV) set multiple trading activity records last week. On January 26th, as silver prices neared their peak, SLV saw a daily turnover of $39.4 billion; on the same day, turnover for the most popular S&P 500-tracking ETF (SPY) was only slightly higher at $41.9 billion. In contrast, SPY's turnover was 70 times that of SLV on the same date last year.
Another popular leveraged ETF (ticker AGQ, offering double the exposure to silver's price moves) fell 60% last Friday and dropped another 9% this Monday.
Leveraged ETFs are "typically dominated by retail money," according to Trevor Yates of Global X ETFs, because institutional investors "have more efficient ways to access leverage."
Many investors who joined the trend late are now facing significant losses. A Reddit user who bought AGQ near last week's peak stated they had lost over $25,000 by the weekend. "I lost my entire portfolio today, equivalent to a year's after-tax salary," they wrote on a forum.
Another "devastated" Reddit user revealed they had been trading silver derivatives and lost "a large sum of money" during last Friday's historic 27% single-day plunge.
"January will be remembered for silver trading like a meme stock," said Nicky Shiels, an analyst at precious metals refiner MKS Pamp. "Someone messaged me saying, 'You basically work in a casino now.'"
Eloise Goulder, Head of Global Data Assets & Alpha Strategy at J.P. Morgan, noted that retail mentions of silver on social media in January were 20 times the five-year average.
The selloff was initially triggered by the Warsh nomination, compounded by exchanges raising margin requirements for precious metals trades and seasonal selling pressure ahead of the Lunar New Year holiday.
Some investors believe Warsh is less likely than other Fed Chair candidates to yield to Trump's pressure for interest rate cuts, alleviating concerns about the Fed's credibility—concerns which had driven precious metal prices higher over the past six months.
Yet the magnitude of volatility in the gold, and especially silver, markets far exceeded reactions in equity or fixed-income markets. Analysts explained that silver's extreme price swings resulted from investors rushing to close long positions, while the relatively niche market simply could not handle the massive influx of hot money seen this year.
"There's a reason silver is called 'gold on steroids'—it tends to overreact in both directions," said CRU analyst Kirill Kirilenko. "And the silver market is much smaller than the gold market."
Many investors view the sharp decline as merely a correction within a deeper, longer-term uptrend, fundamentally driven by investor demand for portfolio diversification. Despite the significant price pullback, current silver prices are only back to mid-January levels, and long-term investors in both gold and silver have still reaped substantial gains over the past year.
"In my view, this is just a knee-jerk reaction," commented Sébastien Le Page of consultancy Acumet. "We are still in a bull market."
In online investment chat rooms, silver's most ardent supporters also see the price drop as a minor setback.
"Keep stacking," wrote one Reddit user as the market suddenly reversed last Thursday. Even as the selloff intensified this Monday, another user remained optimistic: "This is absolutely the clearest long-term buy signal in history."
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