Leveraged hedge fund managers and the broader cohort of speculators slashed their bullish silver bets to the lowest level in nearly two years, just ahead of the Trump administration's decision to temporarily refrain from imposing import tariffs on key minerals, including silver. This massive exodus of previously bullish leveraged funds and short-term high-frequency speculators explains the exceptionally sharp volatility in spot and futures silver prices over the past two days. It is noteworthy that, in stark contrast to the forces underpinning gold's rally, while silver boasts robust industrial demand, the core driver of its recent super bull run has been capital focused on high-frequency trading and equity momentum strategies—often referred to as "fast money." In comparison, gold enjoys substantial support from central bank purchasing and long-term safe-haven capital flows.
The recent sharp correction in the price of silver, the world's hottest precious metal which had been soaring for days and repeatedly hitting record highs, was primarily triggered by former President Trump indicating a pause on tariffs for key mineral imports. This led to a significant cooling of the panic-driven bullish sentiment surrounding silver. By the close of U.S. markets on Friday, spot silver had retreated from its record high of $93.737 set on Wednesday, settling at $90.119, marking a two-day cumulative decline of 3%. Trading on Thursday was particularly volatile, with prices plunging over 7% at one point, highlighting the high-volatility, speculatively-driven nature of silver's pullback. The front-month silver futures contract fell sharply by 4% on Friday, closing at $88.537.
After a staggering rally of over 20% in the past four trading sessions, silver entered a corrective phase. Beyond the macro-level impact of the U.S. tariff reprieve temporarily averting a domestic buying frenzy, the bulk of the decline likely stemmed from substantial profit-taking by the massive speculative positions in silver and billions in selling pressure linked to the Bloomberg Commodity Index (BCOM) rebalancing. Another popular precious metal, gold, also declined over the two days, but its losses were minimal, with spot gold dipping a mere 0.4% on Friday and a cumulative 0.6% over the period.
According to the latest Markets Pulse survey, gold's upward momentum, driven by factors including robust ongoing central bank purchasing demand, is expected to persist beyond January. This suggests that gold prices, which surged 70% over the past year to repeated new highs, are poised for further gains. Recent threats from the Trump administration targeting the Federal Reserve have significantly buoyed the precious metals market, rekindling the "de-risking America" trade and prompting some institutional investors to sell U.S. Treasuries in favor of allocating more capital to the traditional safe-haven asset, gold.
Hedge funds and speculators cut their net bullish bets on silver to a 22-month low. The latest statistics from the U.S. Commodity Futures Trading Commission (CFTC) show that hedge funds and other large speculative players reduced their net long positions in silver by approximately 15% in the week ending January 13, bringing the total down to 15,045 contracts. According to the latest U.S. government data, this level of bullish contracts is the lowest in 22 months. The persistent threat of tariffs on minerals like silver from the Trump administration had been a key driver of the metal's explosive rally, but former President Donald Trump decided on Wednesday to delay full implementation, although he did not rule out future action.
As Trump indicated he would secure supplies of key minerals through bilateral trade agreements, concerns in the U.S. commodities market about imminent tariffs on silver, platinum, and palladium temporarily eased. This led to significant corrections in the recently surging prices of both silver and platinum group metals; at the time of writing, both platinum and palladium were down over 3% on Friday, following steep declines exceeding 5% on Thursday. In a statement on Wednesday evening, the Trump administration proposed setting price floors for imports—rather than just percentage-based tariffs—to develop the increasingly large U.S. industrial supply chain system, but did not rule out announcing tariffs in the future.
"The order suggests the Trump administration will take a more targeted rather than a broader approach in its future decisions," said Daniel Ghali, a senior commodity strategist at TD Securities, in a report. He emphasized that, as evidenced by the sharp declines in both silver and platinum prices, this approach "significantly alleviated fears of a broad-based policy, but this environment may inadvertently undercut the fear premium supporting baseline precious metal prices."
Amid silver's plunge, gold demonstrates its status as the ultimate safe haven. Some Wall Street analysts remain bullish on gold even as silver tumbles, arguing that silver possesses higher volatility and uncertainty than gold. Lacking the support of global central bank reserve demand that gold enjoys, silver is more susceptible to speculative capital flows. According to the latest Markets Pulse survey, gold's upward momentum, driven by factors including robust ongoing central bank purchasing demand, is expected to persist beyond January, indicating potential for continued gains after its 70% surge over the past year.
Gold's trajectory relies more on safe-haven demand, central bank buying, and systematic asset allocation, making its upward momentum relatively more stable. Silver, being more influenced by substantial short-term speculative capital, has seen increased volatility recently, leading Wall Street to typically adopt a more cautious stance on its near-term outlook. Unlike silver, gold benefits from the long-term support of central bank reserve demand, safe-haven portfolio allocation, and institutional investment. Silver may not exhibit the same price resilience as gold, given its dominance by speculative capital, whereas gold's central bank purchasing provides a robust underlying support.
Therefore, heightened volatility may become the norm for silver in the near future. Although silver, along with copper and platinum group metals, has also reached similar record-high milestones, capital flows into these non-gold industrial metals are showing signs of wavering as investors assess the persistence of supply constraints and large-scale speculative positions opt to take profits. Recent potential escalations in geopolitical tensions, combined with the Trump administration's ongoing threats to Federal Reserve independence and the potential erosion of "American economic exceptionalism" leading to a weaker U.S. dollar and Treasury sell-offs under a Trump presidency, are collectively driving global central bank reserves and safe-haven flows towards the ancient precious metal known for long-term value preservation: gold.
An analyst team from ANZ recently stated that market geopolitical turmoil and a safe-haven backdrop should continue to bolster global demand for gold. The analysts pointed to geopolitical tensions, globally accommodative monetary policies, the rising U.S. debt burden, and increased market concerns about Fed independence as factors that will collectively support expectations for gold to break through the super-psychological barrier of $5,000 per ounce in the second half of the year. Analysts at Citigroup hold an even more aggressive bullish outlook for precious metals, forecasting that gold could surpass $5,000 within the next three months. Citigroup cited persistently worsening global geopolitics, uncertainty regarding the global economic outlook and currency values stemming from the Trump administration, physical metal shortages, and threats to Fed independence as key supports for their forecast amidst an unprecedented price trend. In a bull-case scenario, Citigroup's analyst team raised their 0-3 month gold target price from $4,200 per ounce to $5,000.
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