(Jan 8): Silver and platinum plunged, extending a recent run of exceptional volatility, as traders assessed sales from index re-weightings, market tightness and potential US tariffs. Gold also declined.
Spot platinum slid as much as 7.7% and silver tumbled as much as 5.7%, though both metals are still up for the month so far. Silver had powered to record high above US$84 an ounce in late December, as strong retail investor appetite, particularly in China, buffeted prices in thin trading over the holiday period.
Precious metals were also bolstered last year by lower US interest rates, and the possibility that the Federal Reserve will make further cuts. Still, there are some near-term concerns that a broad rebalancing of commodity indexes may act as a drag on prices, as passive tracking funds sell commodities that have rallied heavily to match new weightings.
“We expect large-scale selling activity to kick off amid significant rebalancing flows from broad commodity indices,” TD Securities strategist Daniel Ghali wrote in a note, adding that silver had seen a “devilish blow-off top.”
Citigroup Inc has estimated there would be outflows of US$6.8 billion from gold futures contracts and roughly the same amount from silver as a result of the re-weighting of the two largest commodity indices that’s set to start this week.
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Both metals faced a similar index selloff last year, without causing a discernible drag on the market, according to a Dec 12 note from JPMorgan Chase & Co, although the bank noted that the amount of selling required in silver is more outsized this year.
In the London market, the dominant spot-trading hub, supplies of silver and platinum have been tight following shipments to the US last year spurred by tariff fears. Borrowing costs for the metals eased somewhat this week, but still remain historically elevated, as supplies remain locked in US warehouses.
Traders are still awaiting the outcome of Washington’s Section 232 probe into imports of critical minerals that could lead to levies or trade restrictions.
See also: China's central bank adds gold for 14th month as prices hit record
“You now have a lack of liquidity that means that anyone who wants to come into the market really has to pay up for that,” Michael Widmer, head of metals research at Bank of America Corp, told Bloomberg Television. While there’s a positive fundamental demand outlook for silver — which has many industrial applications — speculators have brought excessive volatility into the market, he said.
Traders are also keeping an eye on geopolitical tensions that may bolster haven demand. Days after the seizure of Venezuela’s president, the White House refused to rule out military force to acquire Greenland. China, meanwhile, imposed controls on exports to Japan with any military use.
While the geopolitical landscape remains fragile, traders are turning their attention to a busy lineup of US economic data, including the December jobs report due on Friday. That follows a gauge of manufacturing activity that came in weaker than expected, bolstering hopes that the Fed will cut rates again.
Adding to these expectations, Fed governor Stephen Miran said the central bank would need to cut rates by more than a percentage point in 2026, telling Fox Business Network that monetary policy is restraining the economy. Three successive rate cuts last year were a tailwind for precious metals, which don’t pay interest.
Gold is fresh from posting its best annual performance since 1979, hitting a series of record highs last year with support from central-bank buying and inflows to bullion-backed exchange-traded funds. Silver’s rally was even more spectacular, with prices surging nearly 150% as it also benefitted from the supply tightness and possibility of tariffs.
Spot silver dropped 4.9% to US$77.318 an ounce as of 3.07pm in London. Spot gold was down 1.2% at US$4,441.26 an ounce. Platinum slid 6.5% to US$2,288.15 an ounce, while palladium lost 4.4%. The Bloomberg Dollar Spot Index was steady.
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