(Bloomberg) — Silver and platinum plunged, extending a recent run of exceptional volatility as traders weighed index rebalancing sales, supply constraints and the risk of potential US tariffs. Gold also declined.
Spot platinum slid as much as 7.7% and silver tumbled as much as 6%, though both metals are still up for the month so far. Silver had powered to a record high above $84 an ounce in late December as strong retail investor appetite, particularly in China, buffeted prices in thin trading over the holiday period.
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Gold and palladium also fell alongside their precious metal peers ahead of an annual rebalancing of broad commodity indexes, which sometimes are a drag on prices because passive tracking funds sell commodities that have rallied heavily to match new weightings.
“We expect large-scale selling activity to kick off amid significant rebalancing flows from broad commodity indices,” TD Securities strategist Daniel Ghali wrote in a note, adding that silver had seen a “devilish blow-off top.”
Citigroup Inc. has estimated outflows of $6.8 billion from gold futures contracts and roughly the same amount from silver because of reweighting of the two largest commodity indexes that’s set to start this week.
Both metals faced a similar index selloff last year, without causing a discernible drag on the market, according to a Dec. 12 note from JPMorgan Chase & Co. The bank, however, said the amount of selling required in silver is more outsized this year.
In the London market, the dominant spot-trading hub, silver and platinum supplies have been tight following shipments to the US last year spurred by tariff fears. Borrowing costs for the metals eased somewhat this week, but still remain historically elevated as inventories remain locked in US warehouses.
Traders are awaiting the outcome of Washington’s Section 232 probe into imports of critical minerals that could lead to levies or trade restrictions.
“You now have a lack of liquidity that means that anyone who wants to come into the market really has to pay up for that,” Michael Widmer, head of metals research at Bank of America Corp., told Bloomberg Television. While there’s a positive fundamental demand outlook for silver, which has many industrial applications, speculators have brought excessive volatility into the market, he said.
Traders also are keeping an eye on geopolitical tensions that may bolster haven demand. Days after the seizure of Venezuela’s president, the White House refused to rule out military force to acquire Greenland. China, meanwhile, imposed controls on exports to Japan with any military use.