Silver and Platinum Plunge to Extend Big Spike in Volatility
(Bloomberg) — Silver and platinum plunged, extending a recent run of exceptional volatility, as traders assessed sales from index re-weightings, market tightness and potential US tariffs. Gold also declined.
Spot platinum slid as much as 7.7% and silver tumbled as much as 5.7%, though both metals are still up for the month so far. Silver had powered to 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.
Most Read from Bloomberg
Precious metals were also bolstered last year by lower US interest rates, and the possibility that the Federal Reserve will make further cuts. Still, there are some near-term concerns that a broad rebalancing of commodity indexes may act as a drag on prices, as 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 there would be outflows of $6.8 billion from gold futures contracts and roughly the same amount from silver as a result of the re-weighting 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., although the bank noted that the amount of selling required in silver is more outsized this year.
In the London market, the dominant spot-trading hub, supplies of silver and platinum 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 supplies remain locked in US warehouses.
Traders are still 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.
