Explained: 6 Reasons Why Silver Prices Crashed by Rs 21,000 per Kg in 1 Day
Understanding the Silver Price Crash
The recent sharp decline in silver prices shocked many investors. Following an impressive rally, prices plummeted by Rs 21,000 per kg, marking a significant drop from the peak of Rs 254,174/kg to Rs 233,120/kg. This dramatic shift occurred after silver breached the pivotal $80-per-ounce mark in international markets.
Key Factors Behind the Crash
1. Peace Talk Progress Reduces Safe-Haven Demand
– Productive discussions between U.S. President Donald Trump and Ukrainian President Volodymyr Zelensky about a potential peace deal triggered the crash.
– The announcement that they were getting closer to an agreement diminished the safe-haven appeal of silver, leading many traders to book profits.
2. Warning Sign from the 200-Day Moving Average
– Analyst Jonathan Krinsky indicated that silver was trading 89% above its 200-day moving average (DMA), a level traditionally associated with significant declines.
– Historical data shows past instances where silver, after extreme upswings, saw sharp corrections.
3. Massive Surge Signals Possible Peak
– The more than 10% rise in silver prices last Friday was one of the largest single-day increases ever, potentially marking the peak of the recent rally.
– Krinsky referenced a similar event in 1987 when a comparable spike resulted in a 25% decline shortly afterward.
4. Record Weekly Gains Indicate Exhaustion
– Last week’s 18% gain in silver marked its largest advance in over 45 years. The preceding weeks also saw notable increases.
– Indicators suggest that the market may be overheating, with the monthly Relative Strength Index (RSI) hitting levels only surpassed during historical peaks.
5. CME Margin Hike Triggers Additional Selling Pressure
– The Chicago Mercantile Exchange increased the initial margin requirement for silver futures, compelling traders to post more collateral.
– This change has triggered waves of liquidation as traders sought to adjust their positions.
6. Dollar Strength and Broader Market Dynamics
– A slight uptick in the U.S. dollar and bond yields added to the selling pressure, making non-yielding assets like silver less attractive.
– Improved risk appetite among investors led to a shift back into equities, with many traders squaring off positions ahead of year-end.
What’s Next for Silver Prices?
Despite the recent turmoil, analysts remain cautiously optimistic. Jigar Trivedi, Senior Research Analyst at Reliance Securities, asserts that the overall trend remains positive, with Rs 2.4 lakh noted as near-term support for silver. However, Krinsky from BTIG warns of a likely pullback to the 50 DMA, anticipating a drop of 25-30% in the coming months.
The recent surge in silver prices, driven by its recognition as a critical mineral and rising demand, has paused. Whether this is merely a healthy correction or the onset of a significant downturn remains to be seen. Investors are advised to monitor these developments closely, considering both the historical context and current market signals.