BIS Exposes Causes Behind Silver's 36% Intraday Flash Crash: Retail Investors and Leveraged ETFs Blamed

According to data from the Bank for International Settlements, silver experienced its most severe sell-off on record at the end of January, a process accelerated by the growing influence of retail investors in leveraged ETFs. Data shows that silver plunged by as much as 36% on January 30, marking its largest single-day decline on record. Earlier in the year, speculative buying driven by geopolitical instability and concerns over the Federal Reserve's independence had pushed silver to a record high. In its quarterly report on market developments, the BIS noted that the sharp reversal following a more than 50% surge in just a few weeks indicates that retail fund flows played a destabilizing role, an effect exacerbated by forced selling from leveraged ETFs. Estimates suggest that as prices fell, the largest ETF tracking silver was compelled to rapidly offload over $3 billion worth of futures, triggering another wave of selling in an already crowded market. As part of its daily leverage reset, the ProShares Ultra Silver ETF (AGQ) must mechanically adjust its futures exposure, aiming to deliver returns equivalent to twice the daily movement of silver futures. The BIS stated, "This predictable, momentum-like trading behavior creates a feedback loop that reinforces existing trends and can distort prices. In the retail-driven precious metals frenzy, the destabilizing impact of leveraged ETF trading appears to have intensified." The report added that margin-triggered liquidations further fueled the sell-off. The combination of futures selling and leveraged ETF rebalancing "formed a self-reinforcing cycle where falling prices and margin calls amplified each other." Data indicates that leveraged ETFs have grown rapidly in popularity in recent years, with nearly one-third of those launched last year employing some form of leverage. According to informed sources, the U.S. Securities and Exchange Commission recently asked issuers to halt plans for a new wave of such funds, citing concerns over increasingly aggressive fund structures.