Silver was by far the commodity market’s “shining star” for almost one year, ahead of once high-water mark gold and providing multibagger returns to retail investors through Exchange Traded Funds (ETFs). That dream shattered today, as silver ETFs plunged by nearly 20% in a single session, one of the largest single-day declines for the metal in a long while. “Poor Man’s Gold” came to look very expensive overnight as panic selling took hold globally following a “perfect storm” of macroeconomic shifts.
1. ‘G RAM G’ and The Global Infrastructure Scare
What has fuelled the selloff most, it seems, is an almost immediate reduction in global industrial forecasts. Silver is a driving force behind solar panels, EV batteries and 5G technology. Recent headlines of the G RAM G Act in India and similar “agricultural-first” policy shifts in emerging markets have led analysts to worry about a temporary cooling-off in heavy industrial infrastructure projects. Silver, which is 50 percent an industrial metal, is also much worse off than gold, as much as we are cynical about industrial demand.
2. A Resurgent US Dollar
Hawkish comments on inflation sent the US Dollar Index (DXY) to a two-year high. Silver prices are also being sold in dollars on the world stage and a much stronger greenback sends the metal into a premium higher for price-sensitive holders of other currencies, making profits flow through fairly automatically.
3. Margin Calls and Technical Breakouts
When silver crossed what constituted a critical support value of $28.50 per ounce there were automated stop-loss orders placed. The fall in price prompted lots of retail investors who owned Silver ETFs at margins to close out almost overnight. This “domino effect” turned a corrected asset into a rout and ETFs were forced into liquidation of their physical silver holdings after redemption pressure.
4. The Solar Tech Shift
Lurking under the bearish mood are rumors about a breakthrough in “silver-free” photovoltaic cells announced by one of the largest tech companies in East Asia. Because this technology is years away from going mainstream, the risk that the solar industry could become less dependent upon silver became the “fundamental justification” for certain large institutional bears to short the market.
What Should Investors Do?
Financial advisers are sounding the alarm, saying silver has been volatile since the beginning. This “easy money” era may be over, but the longer-term silver story has yet to disappear, experts also say, taking the world energy transition into consideration. At least here in the moment there is talk about the return on silver (e.g. on that 200-day moving average of silver) or if there’s more pain to come.
