Silver prices continued their decline after Thursday's sharp 20% drop. Intense price swings have gripped the market as it struggles to find a bottom amidst rapidly evaporating liquidity. Simultaneously, a global sell-off in technology stocks intensified, heavily impacting the S&P 500 and triggering a significant downturn in South Korean equities.
Spot silver fell to as low as $64 per ounce during Asian morning trading, retreating more than 40% from the record high set on January 29th and completely erasing last month's remarkable gains. Gold prices also fell for a second consecutive day. Due to its smaller market size and relatively scarce liquidity, silver has historically experienced more dramatic price swings than gold. However, the recent market behavior is particularly notable for its magnitude and speed—marking the most volatile period since 1980, with speculative momentum and thin over-the-counter trading further amplifying the fluctuations.
"When volatility increases, market makers naturally widen bid-ask spreads and reduce balance sheet usage, leading to the weakest liquidity precisely when the market needs it most," stated Ole Hansen, Head of Commodity Strategy at Saxo Bank, in a report. "Until some order is restored, volatility could enter a self-reinforcing vicious cycle."
A multi-year bull run in precious metals accelerated sharply last month, fueled by heightened geopolitical risks, concerns over Federal Reserve independence, and speculative buying from China. Throughout January, investors built substantial positions in precious metals using leveraged exchange-traded products and call options. This rally came to an abrupt halt over the past weekend: silver recorded its largest single-day drop ever on January 30th, while gold saw its most severe plunge since 2013, plunging the market into extreme volatility.
Nevertheless, the more liquid gold market has shown greater resilience compared to silver. Several banks and asset management firms reiterated their long-term bullish outlook on gold this week. A Fidelity International fund manager, who exited positions before the crash, expressed readiness to buy again, while Deutsche Bank maintained its forecast for gold to reach $6,000 per ounce.
At the time of writing, spot silver was down 2.85% at $68.95 per ounce, and gold was down 1.29% at $4,719 per ounce. Platinum and palladium also declined. The Bloomberg Dollar Spot Index, which measures the dollar's strength, edged down 0.05% but was up 0.7% for the week.
The wave of selling swept into South Korea, dragging down shares of the country's major tech giants and revealing a vulnerable side of the world's best-performing stock market this year. On Friday, the Korea Composite Stock Price Index (KOSPI) plummeted over 5% before paring some losses. Shares of Samsung Electronics and SK Hynix each fell more than 4.8% intraday. In the previous trading session, foreign investors recorded a net sell-off of 4.99 trillion won (approximately $34 billion), a record high. Due to the KOSPI 200 futures dropping over 5%, the Korea Exchange temporarily halted sell orders for program trading. The South Korean won also weakened further against the US dollar.
As key suppliers to top hyperscale computing companies like Nvidia, South Korean chipmakers' stock prices are increasingly swayed by shifts in global AI investment sentiment. Although hardware stocks have been relatively resilient in this sell-off (with software stocks hit hardest by business disruption concerns), Friday's decline indicates a rapid deterioration in sentiment towards the broader AI ecosystem.
"The sharp fall in Korean stocks, following a sell-off in US markets spreading globally, highlights how closely tied the Korean market has become to Wall Street," said Jung In Yun, CEO of Fibonacci Asset Management Global. "The KOSDAQ index, once seen as a partial portfolio diversifier, now trades more like a high-beta extension of US tech stocks, reflecting its high exposure to semiconductors and global liquidity conditions."
Despite Friday's drop, the KOSPI index remains up approximately 18% for the year. Over the past 12 months, the index has doubled, outperforming all other major tracked indices. However, this pullback has pushed the index back below the 5,000-point mark—a level set as a target by South Korean President Lee Jae-myung in his stock market revitalization plan. The KOSPI index had only surpassed this milestone last month.
"A consolidation period after a strong rally is normal," said Christian Heck, Portfolio Manager at First Eagle Investments. "Whether this rally can be sustained will depend on the delivery of corporate earnings and continued improvement in shareholder returns."
Comments