Leverage ETFs plunge 60% in two days! Silver becomes a "retail investor graveyard," Reddit speculators devastated everywhere.

The historic rally in the silver market recently encountered a dramatic reversal, turning into a crash that caught retail investors off guard. Driven by a speculative frenzy, the volatility of this precious metal once rivaled that of "Meme stocks" during the COVID-19 pandemic, but it quickly turned downward, not only wiping out huge market value but also dealing a heavy blow to retail investors who rushed in at high prices.

After silver prices hit a peak of over $120 per ounce last Thursday, they suffered a brutal three-day decline of more than 40%. Although prices rebounded by 9% on Tuesday, the extreme volatility has caused significant damage. Meanwhile, gold prices also went through a violent swing, rebounding 6% after dropping 21% from its peak.

Triggers for this plunge include US President Trump's nomination of Walsh as Federal Reserve Chair, as well as exchanges raising margin requirements. However, traders generally believe that the speed and severity of the crash were mainly due to the rapid reversal of the recent speculative frenzy. In recent months, especially with large influxes of retail capital from Asia, investors tried to profit from this highly volatile asset.

Market data shows that ETFs tracking gold and silver have lost roughly $150 billion in market value since last week's market peak. Among them, leveraged ETFs favored by retail investors were hit hard; a double-long silver ETF plunged nearly 70% in two days, causing devastating losses to speculators active on forums like Reddit. Analysts warn that, due to its high volatility, silver is often called "gold on steroids," and this extreme market movement is essentially an "accident waiting to happen."

Meme Stock-Style Speculation Frenzy

Although a rush to buy physical silver occurred in January, even causing national mints to experience supply shortages and refineries to work overtime, market participants point out that the most frenzied speculative activity was focused on financial assets linked to precious metals.

According to Vanda Research, retail investors injected a record $1 billion into silver ETFs in January. As the most popular target among retail investors, the silver ETF SLV broke multiple trading records last week. On January 26, when silver prices neared their historic peak, SLV reached $39.4 billion in trading volume—nearly matching SPY, the hottest ETF tracking the S&P 500, which traded $41.9 billion. On the same day last year, SPY’s trading volume was 70 times that of SLV.

Eloise Goulder, head of J.P. Morgan’s Global Data Assets and Alpha Group, points out that mentions of silver by retail investors on social media in January were 20 times the five-year average. Nicky Shiels, an analyst at refiner MKS Pamp, said: "January will be remembered as the month when silver traded like a 'Meme stock'." She even received messages joking that she had officially started working in a casino.

Leveraged ETFs Hammer Retail Portfolios

For retail investors who entered at high prices using leveraged tools, this pullback was catastrophic. Trevor Yates from Global X ETFs notes that leveraged ETFs are usually powered by retail flows, as institutional investors have more efficient ways to gain leverage.

The popular double-long silver ETF—AGQ—plunged 60% last Friday, then dropped another 9% on Monday. This sharp, one-sided decline caused heavy losses for many who bought in at the top.

On Reddit forums, cries of pain from retail investors were everywhere. One user who bought AGQ near silver's historical high last week said that as of the weekend, he had an unrealized loss of over $25,000, writing: "Today I lost the equivalent of my after-tax annual salary—nearly my entire investment portfolio.” Another user trading silver derivatives said he was "devastated,” losing “astronomical amounts of money" during Friday's record 27% single-day drop.

StoneX analyst Rhona O’Connell bluntly stated:

“Silver has always been a death trap. The parabolic movement in recent weeks really was an accident waiting to happen.”

Policy Triggers and Structural Vulnerability in the Market

The selloff was initially triggered by macro news: Trump nominated Walsh as Federal Reserve chair candidate. Some investors believe Walsh is less likely than other candidates to cave to rate-cutting pressure, which somewhat eased market concerns over loss of central bank credibility—a driving force behind precious metals’ rally over the past six months. In addition, exchanges in both China and the US raised margin requirements for precious metal trading, and seasonal selling ahead of the Lunar New Year accelerated the decline.

However, the shallow depth of the silver market amplified these effects. Analysts point out that the silver market is relatively niche and cannot absorb this year’s massive inflow of hot money. CRU analyst Kirill Kirilenko explained that this is why silver is called "gold on steroids"—it tends to overshoot in both directions. When investors rush to unwind bullish bets, the market lacks sufficient liquidity to absorb them, causing a price collapse.

Bulls, Bears, and Outlook

Despite the dramatic plunge, current silver prices have only returned to mid-January levels. Investors who held gold and silver long-term over the past year are still sitting on huge profits.

Some market participants see this drop as a correction in a deep rebound. Acumet consulting’s Sébastien Le Page commented:

“This is just a knee-jerk reaction; we’re still in bull market territory.”

Meanwhile, on online investment forums, silver’s most ardent fans are still trying to stay optimistic. Even as the market slumped last Thursday, one Reddit user called to “keep stacking.” Even after Monday’s steeper decline, there were posters still bullish, calling it “the clearest long-term buy signal ever.” The extreme divergence in the market suggests volatility may continue into the future.

Risk Warning and DisclaimerThe market involves risks; investment requires caution. This article does not constitute personal investment advice, nor does it take into account any user’s individual investment objectives, financial situation, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their own circumstances. Investing accordingly is at your own risk.