Hit hard upon entry! The "army of retail investors" floods into the gold and silver markets, only to encounter a historic plunge.

The recent frenzy in trading of metals and mining stocks abruptly came to a halt as a large number of retail investors entered the market, drawing widespread attention. Catalyzed by a rebound in the US dollar, gold, silver, and copper prices experienced a sharp tumble last Friday, ending the previous surge that had driven them to record highs. This sudden reversal demonstrates that once speculative retail capital pushes assets into “meme stock”-like volatility zones, even a slight shift in market sentiment can trigger a violent negative feedback loop.

This dramatic selloff occurred after a massive influx of retail investors. According to data from Vanda Research, last Thursday, retail traders injected about $171 million into the iShares Silver Trust (SLV), marking the largest single-day net inflow ever recorded for this group. However, just a day later, the US dollar surged in response to President Donald Trump’s nomination of an openly hawkish candidate, Waller, as the next Fed Chair, causing dollar-denominated precious metals to suffer heavy losses.

Last Friday, the iShares Silver Trust saw its biggest drop since listing in 2006, and the NYSE Arca Gold Miners Index suffered its worst decline since 2008, with the materials sector becoming the weakest performer in the S&P 500 Index. The selloff continued into Monday, with intraday gold falling up to 10% and silver plunging as much as 16%, though both later regained some losses. On Friday alone, gold fell 9%, silver dropped over 20%, while the dollar recorded its biggest gain since May.

The main concern in the market right now is that the increasingly deep involvement of retail investors chasing short-term gains with fickle positions may further exacerbate market disorder and volatility. Data from Interactive Brokers shows that the SLV fund became the second most actively traded asset on its platform last Friday. In the five days to January 27, its activity ranked fifth among stocks and options—about twice that of the previous week.

Rising Volatility and “Meme-ification” Risk

Roundhill Investments CEO Dave Mazza pointed out that once a trade shifts from being a portfolio anchor to displaying “meme stock”-like characteristics, volatility is bound to rise. He stated:

“Everyone quickly goes all-in, so when the market sentiment shifts, everyone acts at once, causing a negative and powerful feedback loop.”

Previously, due to a weak dollar, escalating geopolitical tensions, and rising industrial demand for silver from the tech sector, precious metals prices soared in recent weeks. As some big tech stocks stagnated this year, speculative retail capital seeking the metals frenzy further fueled momentum. Christopher Harvey, Head of Equity and Portfolio Strategy at CIBC Capital Markets, commented that the involvement of this group “only creates more volatility,” which will drive some people crazy while benefiting others.

Steven DeSanctis, equity strategist at Jefferies LLC, mentioned in a Jan 29 report that a “new twist” has appeared in the company’s basket of retail favorites: eight new stocks from the metals and mining sector were added, showing strong retail interest in this area.

Institutions See the Crash as a Buying Opportunity

Despite the heavy blow to the precious metals sector, some institutional investors see opportunity in the industrial metals sell-off. Alexander Altmann of Barclays thinks the turmoil in industrial metals has provided “an attractive entry point.” He noted that the build-out of AI infrastructure and fiscal expansion policies across multiple governments will act as catalysts for industrial metals prices.

Barclays data shows the Bloomberg Industrial Metals Subindex has risen about 30% from its recent low, but that still falls short of the average rally of around 170% seen in metal bull cycles since the 1990s.

Altmann emphasized that the spillover effect from the recent decline is a “gift.” He especially pointed out that industrial metals stocks have underperformed compared to those precious metals companies crowded by retail investors, making related trades especially interesting. This structural divergence could offer new entry points for value-seeking investors.

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