Silver price plunges to $80 as demand for safe-haven assets wanes

A dramatic reversal in precious metals markets saw silver prices plummet on Thursday, shedding over 11% in a single session. The violent sell-off dragged spot silver down to $80.75 an ounce, a stark retreat from the record high of $121.64 reached just last week. The move signals a rapid shift in market sentiment, as easing geopolitical tensions and a strengthening U.S. dollar curb investor appetite for traditional safe-haven assets.

Gold also succumbed to the pressure, with spot prices falling 3.1% to $4,936.24 per troy ounce, erasing earlier gains in the futures market. The coordinated decline underscores a broader "risk-on" mood taking hold across global markets, unwinding the fear-driven rally that recently propelled precious metals to multi-year and, in silver's case, all-time highs.

A Brutal Reversal for Precious Metals

The velocity of the downturn has caught many investors by surprise. After a period of extreme bullishness, Thursday's session served as a harsh reminder of the volatility inherent in commodity markets.

Silver was the epicentre of the sell-off. Spot prices (SI=F) cratered 11% to $80.75, while silver futures for near-term delivery fell 5.2% to settle at $80.01. This precipitous drop represents a more than 33% decline from the peak of $121.64 set just one week ago, wiping out a significant portion of the recent gains.

Gold, while more resilient, did not escape the downdraft. After futures (GC=F) posted a modest 0.2% gain to $4,958.40, spot prices reversed sharply, tracking silver's decline. The 3.1% drop to $4,936.24 indicates that underlying physical demand is faltering in the face of significant market headwinds.

What's Behind the Sell-Off?

The decline is not tied to a single catalyst but rather a confluence of factors that have collectively diminished the appeal of holding non-yielding assets like gold and silver.

A Resurgent U.S. Dollar

A primary driver of the weakness in precious metals is the renewed strength of the U.S. dollar, which hovered near a two-week high. As gold and silver are priced in dollars, a stronger greenback makes them more expensive for holders of other currencies, dampening international demand.

• Federal Reserve Speculation: The dollar's ascent is largely fuelled by speculation surrounding the Federal Reserve's future policy path. President Donald Trump's nomination of Kevin Warsh to be the next Fed Chair has led markets to price in a more "hawkish" central bank. Warsh is perceived as being less inclined toward the highly accommodative, or "dovish," monetary policies of the recent past. A hawkish Fed typically implies higher interest rates, which increases the opportunity cost of holding non-yielding bullion and provides further support for the dollar.

Thawing Geopolitical Tensions

A significant portion of the recent rally in safe-haven assets was built on a foundation of geopolitical risk. As signs emerge that these tensions may be easing, investors are rotating out of defensive positions and into riskier assets.

• U.S.-China Dialogue: President Trump described recent talks with Chinese President Xi Jinping as "very positive." Following the discussion, Trump indicated that China may significantly increase its purchases of U.S.-grown soybeans. This gesture is being interpreted by markets as a key step toward de-escalating the trade conflict between the world's two largest economies.

• U.S.-Iran Negotiations: Officials from Washington and Tehran confirmed they are scheduled to hold talks in Oman on Friday. While sharp differences remain, the agreement to meet has raised hopes of a diplomatic breakthrough. This development has had a direct impact on oil prices, with Brent crude falling 1.6% to $68.33 a barrel, and has contributed to the broader decline in the "risk premium" that was supporting gold and silver.

"Volatility Aftershocks" Rattle Investors

Market analysts are warning that the sharp price movements are likely to continue as the market digests the recent turmoil. The rapid ascent to record highs created an unstable environment, making a sharp correction more probable.

Tony Sycamore, an analyst at IG, noted the return of extreme price swings. "With the blink of an eye, volatility in the precious metals returns with silver falling 16% in quick time," he said. "It is common after a period of extreme volatility to experience a sequence of volatility aftershocks."

Sycamore drew parallels to previous market behaviour in gold. "After the 20% plunge from $5,600, gold hit $4,400 before rebounding to $5,065," he added. "Extreme volatility like this typically brings aftershocks, and more turbulence is expected in the short term."

This sentiment is echoed by major financial institutions, which are now advising caution.

• Institutional Caution: Analysts at UBS (UBSG.SW) stated that silver prices would need to fall even further "to make the metal attractive to us." The bank highlighted the asset's extreme price movements, noting, "an asset exhibiting 60-120% volatility requires an expected return of 30-60% to go long, which is not yet the case." Their analysis suggests that for long-term investors, the risk-reward profile for silver is not yet favourable after its parabolic run-up.

What to Watch Next

As the dust settles, investors will be closely monitoring the key drivers that catalysed this week's sell-off. The path forward for precious metals will likely be determined by developments on the monetary and geopolitical fronts.

• Federal Reserve Policy: All eyes will remain on the Fed. Any further signals of a hawkish policy shift, particularly regarding the timeline for interest rate hikes, could create additional headwinds for gold and silver. Conversely, any backtracking could provide a floor for prices.

• Geopolitical Developments: The outcome of the U.S.-Iran talks in Oman will be a critical near-term catalyst. A successful diplomatic engagement could further reduce risk premiums and weigh on safe havens. Similarly, any concrete follow-through on the positive U.S.-China trade discussions will be closely watched.

• Dollar Strength: The trajectory of the U.S. Dollar Index (DXY) will be a key barometer. A continued rally in the dollar would likely keep precious metals under pressure.

• Technical Levels: After the plunge, the $80 mark for silver and the $4,900 level for gold have become crucial psychological support zones. A failure to hold these levels could open the door to a deeper correction.