Silver plunged, traders are searching for the reason, Goldman Sachs Asia trading desk: “No concrete evidence”

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After silver prices broke through the $80 per ounce mark for the first time, they experienced a sharp pullback, ending the recent almost vertical upward trend. Despite intense market volatility, traders found it difficult to identify a single clear catalyst for the plunge, and extreme market sentiment is now facing a correction.

In the overnight market on Monday, silver prices once surged above $84 but then plunged sharply, giving back almost all of the early gains and ultimately closing up only 0.51%. Meanwhile, the precious metals sector was broadly under pressure, with platinum and palladium both hitting their down limit; gold also fell by 0.91%, and open interest in all four major precious metal contracts declined.

This market reversal occurred against a backdrop of surging Chinese investment demand. The premium of Shanghai spot silver over London prices at one point exceeded $8, reaching a historic high. Faced with such frenzied market sentiment, China's only pure silver fund, after several ineffective risk warnings, was forced to take the extreme measure of refusing new clients.

Regarding this pullback, Goldman Sachs Asia trading desk pointed out that the market has “no conclusive short-selling reasons.” Analysts generally believe that thin holiday liquidity, exchanges raising margin requirements, and technical signals indicating extreme overbought conditions all contributed to this sharp price correction.

Lack of Clear Short-Selling Reasons

Despite the violent market swings, institutions remain cautious about pinpointing a specific reason for the drop.

Goldman Sachs Asia trading desk noted that although there are only three days left till the New Year, China’s commodities market is still highly volatile. Silver at one point surged 9.25% before the midday break, but then switched to a risk-off mode in the absence of any notable negative news, causing a significant pullback in precious metals.

Bloomberg macro strategist Adam Linton agreed with Goldman Sachs that there was no single trigger. He noted that although there is no clear driver for silver’s pullback, the low liquidity and previously parabolic rise in silver made it highly susceptible to a reversal.

Macroeconomic drivers and liquidity remain weak, implying that such unstable price movements in the metals market may become the norm during the remaining trading days of 2025.

Speculation Frenzy and Regulatory Brake

Speculative sentiment is seen as a key driver of recent market moves. Wang Yanqing, analyst at China Futures Ltd., said that speculative atmosphere is currently very strong and the hype around tight spot supply has become somewhat extreme.

Tighter regulation is having a cooling effect on the market. CME’s statement shows that the margin requirement for some Comex silver futures contracts will be raised from $3.2 per ounce to $4.4 starting Monday. Wang Yanqing believes this move will help reduce speculative activity. In addition, GFEX recently tightened measures to curb excessive trading in palladium and platinum.

Liquidity Dry-Up and Technical Pullback

Market structure and technical indicators also show the need for a pullback. The PFR ExtremeHurst model—a tool for identifying self-reinforcing herd behavior mania—has triggered a signal of silver’s top exhaustion. A similar signal accurately predicted an 11% pullback in gold last October.

In terms of capital flows, Goldman Sachs futures trader Robbie Dwyer noted there was a noticeable wave of liquidations in early Monday trading, with 40,000 contracts sold during the day. Although ETFs bought 13 million ounces of silver from December 19th to 26th, this did not prevent profit-taking in the futures market. Dwyer emphasized that while increased margin requirements may have contributed to the selling, with the high volatility and high prices of the past week, funds may have already begun reducing long positions.

Risk Warning and DisclaimerThe market has risks; investment must be cautious. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of any individual user. Users should consider whether any opinions, views, or conclusions in this article are suitable for their own circumstances. Investment based on this content is at your own risk. ```