MCX Silver Crash: Prices Fall 15% on Global Metals Selloff

After reaching all-time highs earlier in the week, silver prices sharply reversed on Friday, plunging over 15% on the Multi Commodity Exchange (MCX).

MCX Silver Crash After Record Highs

Silver March futures began the session at Rs 3,83,646 and ended the day at Rs 3,42,390 per kilogram, down from Thursday’s closing of Rs 3,99,893. On January 29, the metal’s March contract momentarily reached a record Rs 4,20,048.

Comex spot silver dropped to $98 an ounce, a 14.15% drop from the previous close, as a result of the selloff, which mirrored worldwide market patterns. Platinum and palladium also fell, with gold down 8.9% to $4,894.23 an ounce in New York. After hitting a record over $14,000 on Thursday, copper on the London Metal Exchange dropped 3.4% to $13,157.50 a ton.

Global Metals Selloff Impact

Following a record increase in precious metals and a strengthening of the US currency following President Donald Trump’s selection of former Fed Governor Kevin Warsh as the next Federal Reserve Chair, analysts blamed the rapid decline on profit-taking. A selloff in dollar-priced commodities resulted from investors seeing the appointment as a hint of a stronger currency and the potential for tighter monetary policy.

Dealers are compelled to purchase as prices climb and sell as they fall due to a “gamma squeeze” effect caused by a wave of option transactions in gold and silver that mechanically strengthened prices on the way up. The relative strength index (RSI) for gold recently reached 90, the highest level in decades, indicating that the market is overbought.

Margin Hikes and Volatility

CME Group increased margins for Comex gold and silver futures due to the market’s excessive volatility. With effect from Monday’s close, silver margins for non-heightened risk profiles will jump from 11% to 15%, while gold margins will rise from 6% to 8%. The purpose of the action is to provide sufficient collateral coverage in the face of abrupt price fluctuations.

Silver and gold both had significant increases for the month of January, with silver up 19% and gold up 13%, despite the Friday crash. Prior to China’s Lunar New Year vacation on February 16, when major metals users are anticipated to curtail trade activity, analysts cautioned that volatility may continue.

Market Outlook After MCX Silver Crash

The metals markets have been spurred by continuous geopolitical tensions, macroeconomic uncertainty, and adjustments in U.S. policy, notably the likelihood for a lower dollar prior to Warsh’s confirmation. Market players are still wary, expecting further dramatic fluctuations in both industrial and precious metals.

Frequently asked questions

1. Why did the price of MCX silver drop by about 15% in one day?

Due to significant profit-taking after record highs, a stronger US dollar, and worldwide precious metal selloffs, silver prices plummeted. The decline was further hastened by CME’s margin increases and the unwinding of leveraged holdings.

2. What connection exists between the price of silver and the US dollar?

Around the world, silver is valued in dollars. Silver becomes more costly for holders of foreign currencies as the dollar appreciates, which lowers demand and usually drives down prices.

3. What impact did margin increases have on futures for gold and silver?

Traders are required to deposit greater collateral when exchanges increase their margin requirements. This often compels leveraged traders to swiftly decrease their holdings, which raises price volatility and selling pressure.

4. Describe a gamma squeeze and discuss its effects on metals.

When option-related hedging compels dealers to purchase when prices increase and sell when prices fall, this is known as a gamma squeeze. This may increase short-term volatility by exaggerating both violent collapses and rising rises.

5. Is this collapse a temporary correction or a reversal of the trend?

As of right now, analysts see it as a severe drop after an overbought surge. However, future direction will rely on dollar strength, U.S. monetary policy signals, and global risk sentiment.

Conclusion

A worldwide commodities correction caused by profit-booking, dollar strength, margin increases, and derivatives-led volatility is reflected in the precipitous decline in MCX silver. Precious metals continue to have strong monthly increases despite the seeming severe decline.

Traders should anticipate continuing swings in the short future, particularly around big policy signals and global demand movements, and manage risk cautiously in leveraged positions

Disclaimer

This content on MCX silver crash is for informational purposes only and not investment advice. Markets are volatile. Consult a qualified financial advisor before trading.