Why did silver suddenly plunge? Veteran hedge fund manager warns of five major short-term risks in advance
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After a 25% surge in silver prices in a single month, Alexander Campbell, a veteran hedge fund manager who accurately predicted silver's rise in February this year, has issued a new warning: Although the long-term bullish logic remains unchanged, investors should be alert to five major short-term risk factors that may trigger a pullback.
On Monday (December 29), the spot price of silver was highly volatile. After soaring as much as 6% in early trading, it plunged, now down more than 5% to $75.10/oz, with the day's lowest at $74/oz. Last Friday, silver set a record for the largest single-day price increase in US dollars.
Veteran hedge fund manager, former Bridgewater Global Macro investor, and founder and CEO of Black Snow Capital Alexander Campbell pointed out in his latest Substack article that as the New Year approaches, the market faces multiple pressures, including tax-motivated selling, a rebound in the US dollar, higher margin requirements, technical overbought conditions, and the threat of copper substitution.
It is worth noting that besides Campbell’s warning, a “technical storm” from passive funds is also approaching. According to Chasing Wind Trading Desk, the Bloomberg Commodity Index (BCOM) will undergo annual weight rebalancing in January 2026. Due to silver’s strong outperformance over the past three years, passive funds will be forced to sell positions that amount to roughly 9% of the total open interest in the futures market. This is much larger than previous years and could exacerbate market volatility in January.
Despite short-term risks, Campbell’s long-term bullish stance on silver has not wavered. He pointed out that the current huge spread between the spot and futures markets, and the deepest spot premium structure in London in decades, all show a structural supply-demand imbalance.
Five Major Short-term Risks Concentrated
Campbell provided a detailed analysis of the short-term pressures facing silver.
The primary risk comes from tax-driven selling.
For investors holding large unrealized gains, selling before December 31 will incur short-term capital gains tax, prompting traders to hold positions until year-end to benefit from preferential long-term capital gains tax rates. This means the last three trading days of 2025 may be marked by reluctance to sell, but after January 2, 2026, concentrated profit-taking may occur.
The second risk is a strengthening US dollar.
Latest GDP data indicates strong economic growth in the third quarter, which may push the dollar to rebound in the short term. A stronger dollar typically puts pressure on commodities priced in dollars.
Third, the Chicago Mercantile Exchange has announced an increase in silver margin requirements effective December 29.
Campbell acknowledges this will reduce leverage and speculative demand, but he notes that the current margin level has reached 17% of notional value, far higher than the peak 10% during the 2011 silver crash. The current leverage multiple is only 6x, compared to as much as 25x in early 2011. Therefore, the impact of this margin hike is much smaller than the repeated increases in 2011.
The fourth risk comes from technical factors.
Many analysts point out that silver is already in an "overbought" zone and technical selling may trigger more sell-offs. However, Campbell questions this judgment, believing that silver’s rise is driven by rigid demand from the solar industry and a lack of supply elasticity, rather than pure technical speculation.
The fifth risk is the threat of copper substitution.
As silver prices surge, solar manufacturers may turn to using copper. Although Campbell notes that substituting copper for silver in industrial applications would take at least a four-year cycle, amid price spikes, these narratives are enough to trigger technical selling in the short term.
Index Rebalancing May Increase Volatility
In addition to the five risks Campbell mentioned, the market also faces another technical pressure.
According to Chasing Wind Trading Desk, a J.P. Morgan research report released on December 12 indicated that the Bloomberg Commodity Index will undergo annual weight rebalancing in January 2026. As gold and silver have outperformed other commodities for three consecutive years, their index weightings have naturally risen to excessively high levels.
To return to the target allocation, passive funds tracking the index will be forced to sell precious metals futures positions. J.P. Morgan estimates that silver will face sales equivalent to 9% of its total open interest in the futures market, and gold about 3%. This mandatory sell-off will be concentrated during the index roll period from January 8 to 14, 2026.
Assets tracking the Bloomberg Commodity Index exceed $60 billion. Such a large amount of funds concentrated in adjustment will inevitably magnify market volatility. This highly overlaps with Campbell’s warned window for tax-driven selling and may create a resonance effect.
Long-term Fundamentals Remain Strong
Despite short-term risks, Campbell's enthusiasm for silver in the long term remains undiminished. He lists deep structural factors supporting silver prices.
The spot market shows structural tension. Campbell said the current spot silver price in Dubai is $91/oz, Shanghai is $85/oz, while COMEX futures are only $77/oz. The physical market premium is as high as $10-14.
Campbell pointed out, "When such a large divergence occurs between the spot and futures markets, one of them is wrong, and historically, it hasn’t been the spot market."
The spot premium structure in the London OTC market has reached the deepest level in decades. A year ago this market was in a normal futures premium state (spot $29, forward curve rising to $42), but now it has inverted (spot $80, forward curve falling to $73). This type of backwardation where spot prices exceed forward prices usually implies a physical market shortage.
Investment demand and industrial demand resonate.
From the investment demand side, position data shows the silver market is not overly crowded. According to the CFTC, speculative net long positions account for 19% of open interest, while gold is 31%. This means silver still has room to rise.
Silver ETFs, such as the iShares Silver Trust, have seen holdings climb again after years of outflows. Higher prices have actually driven increased demand, showing "Veblen good" characteristics—silver is gaining monetary demand, not just industrial demand.
The options market is also repricing tail risks. Implied volatility for at-the-money options has risen from 27% a year ago to 43%; out-of-the-money call option implied volatility is as high as 50-70%. This shows the options market is pricing in substantial upside for silver.
On the industrial demand side, solar industry demand provides long-term support. The industry’s silver demand for 2025 is 290 million ounces, expected to reach 450 million ounces by 2030. Campbell emphasizes that after 25 years without demand growth, the rise of the solar industry has completely changed the silver market landscape.
Power demand from data centers and AI further strengthens this logic chain: "Each AI query requires electronics, marginal electrons come from solar, and solar needs silver." Campbell says the solar industry’s breakeven point is $134/oz, about $70 above the current spot price.
Risk Warning and DisclaimerThe market carries risk and investments should be made cautiously. This article does not constitute personal investment advice and does not take into account each user's unique investment objectives, financial situation, or needs. Users should consider whether any opinions, views or conclusions in this article suit their specific circumstances. Investing based on this is at your own risk. ```