One of the most crowded and speculative trades of the past year, precious metals, blew up spectacularly on Friday. Gold and silver collapsed, with silver suffering the largest intraday decline on record, down as much as 36% at the lows. While some may assign this to Kevin Warsh being declared the next Fed chair, we believe there are far more important factors which led to Friday's rout. Most important being margin hikes by CME on silver futures. Since 12th Dec’25 CME has raised Silver margins by almost 80% till end Jan’26. Initially the margins on silver futures were in absolute terms which later around mid-Jan changed to % terms. In it’s 12th Dec notice, silver margin was increased to 22k from 20k, by mid Jan it was at 32,500 USD. Then in mid Jan absolute margins were changed to % terms starting from 9% which now as per the latest notice w.e.f from 2nd Feb is 15%. The similar playbook was used by CME in 1980 & 2011. For e.g. when Silver rose from $5 levels in 1978 to $40 levels in 1980, CME had drastically increased margin requirements on silver futures, causing a severe price crash from nearly $50 per ounce in January to around $10 by March. This action, known as part of the "Silver Rule 7" policy, was a direct response to the Hunt Brothers' massive attempt to corner the silver market. Again in 2011, when Silver prices rose from $10 levels in 2008 to $50 levels, CME aggressively raised margin requirements for silver futures multiple times, particularly between April and May, with total increases exceeding 80%. Once is accident, twice is coincidence & thrice is a pattern. Effectively CME has used the same playbook thrice in the past 50 years to counter sharp rise in silver prices. Also physical demand supply was improving as seen in higher stock levels in London markets as well as falling Comex silver holdings. Silver ETP flows had also turned negative. Net redemptions have reached 899 tonnes in January so far, which may reflect a rotation to a preference to hold physical bars rather than an ETP. Industrial end uses have started to consider substitution options, with solar panel fabricators considering copper. To summarise, we believe a multitude of factors led to Friday's rout in Silver with CME margin hikes being the most important factor followed by Kevin Warsh selection as Fed Chair followed by comfortable physical demand supply market. To summarise, Silver has a history of CME intervention when prices rise sharply. But this price rise is not astronomical. Silver’s $120 level last week corresponded to an inflation-adjusted peak of $207 set in 1980. It baffles us why CME acts the way it does sometimes. We wonder why CME gets uncomfortable with silver price rise every time in last 50 years. We also wonder why there were no hedge fund/ bank accidents while Silver went from 25 to 120 in past two years & why there are none when it has shown a 12-sigma event on Friday. We were the initial bulls on Silver in Nov’24 when it was trading at $30 levels for a target of $40 levels which was achieved in Sep’25. https://macro-spectrum.com/trade-recommendation/long-silver For now, we believe Silver might find support near $40-50 levels & then consolidate around $50 but it will be years before it breaches $120 levels of last week. Once Silver prices break down, they tend to remain subdued for several years, possibly decades. Each new cycle ends where it started from. For e.g. in 1980s, prices fell from their highs of $50 levels to $5 levels and remained there for decades before it again picked up in 2005. In the 2011 melt up it went to $50 levels but then fell sharply to $15 levels and remained there till 2020 from where it again picked up. Now we expect the 1st support at $50 levels around which it should consolidate for several years before another up move starts. And if & when that up move starts, piercing through $120 levels, CME might not succeed in pulling it down the 4th time. One can manage derivatives trading by margin rules but physical price levels can’t be managed by exchanges. Broader themes such as dollar debasement, silver physical demand supply deficit, dedollarisation, AI/EV demand might help Silver stabilise around $50 levels. This consolidation is a healthy step for the next up move. But that up move might be years away. But the Tulip times for Silver trading is over. Traders should resist from expecting last year’s return from Silver any time soon. For now, paper has won over physical as seen in Friday’s rout.
