Precious metals came under pressure following yesterday’s aggressive sell off. Gold fell by more than 5%, while silver experienced more than double that volatility. The speed of the correction, as much as its magnitude, was the key element behind the intensity of the market reaction.
The move appears to have been driven by a combination of profit taking and the unwinding of leveraged positions. Silver was at the center of the action after the recent rapid surge, understandably prompting participants to lock in gains. A key aggravating factor was the increase in margin requirements last Friday, with an additional 5,000 per March contract. This amplified the downside move, turning the pullback into a negative feedback loop that each additional leg lower pushed more positions below maintenance thresholds, triggering further forced selling until fresh flows eventually absorbed the pressure.
Thin seasonal liquidity also played a meaningful role. At this time of year, market depth is typically thinner leaving pricing more fragile and more sensitive to flows. In such an environment, relatively modest positioning adjustments can translate into pronounced price moves in the absence of the usual market depth.
That said, context remains critical. Stepping back, both gold and silver have effectively retraced to levels seen just before the holiday period, barely a week ago. This does not necessarily imply the correction is over. However, this environment is clearly attractive for speculative flows, and importantly, the longer term fundamentals for precious metals remain intact.
Tactically, attention now shifts to key technical reference points. In silver, 70 – 71 per ounce range stands out as a support and monitoring area, even though prices at those levels would still sit meaningfully above the 50 day moving average, reflecting the speed of the prior rally. In gold, price action continues to show resilience around the 4,350 levels, which coincides with the upper boundary of the previous price channel. As volatility subsides and liquidation pressures ease, this pullback could ultimately prove to be a renewed opportunity rather than trend reversal in gold.