Gold and Silver tank: Why?

This week the price of both silver and gold has decreased drastically with gold dropping as low as 14% as of February 2nd, and silver dropping over 30%, all within the span of a few days. Recently, demand for physical metals has hit all-time highs, as purchases of gold and silver ETFs have outpaced worldwide S&P 500 purchases, while Trump also announced a $12 billion critical mineral stockpile. What does this mean for precious metals?

One of the key reasons we are seeing silver continue to fall today is the large-scale increase in margins for silver future contracts in both the US and China, the main consumer locations for precious metals, resulting in higher volatility. We've also seen this large increase in margins among private precious metal distributors, with COMEX and CME group increasing margins on silver to

an unheard of 36%, which will be going into affect today. Demand for physical gold and silver has also grown as civilians line up in cities across the world in the hope of purchasing one of the precious metals. The CEO of SD Bullion has recently spoken on this increase in demand: "There's been a massive amount of physical demand for the last 60 days. Started around mid-December, Friday came, you know, there was obviously a lot of panic. There are a lot of people buying. We recorded a record number of transactions for that day at SD Bullion. And when I say a record, I mean by two and a half times the largest record that we saw at the Silicon Valley Bank collapse in 2023. The revenue was off the charts." As a result of the drastic decrease in price of both metals, consumer demand has been extreme, representing potential for a rebound. Many external factors could be seen as the key reason for the almost vertical increase seen in both metals in the last few weeks. In India, we have seen a drastic amount of purchasing before the implementation of stricter regulations on the importation of precious metals, which was implemented on the first of February. In China, the Chinese New Year is soon to arrive, with gold being both a popular investment and an even more popular gift, driving up demand even further. In the case of silver, there is an extreme amount of pent-up industrial demand as well because most factories in China tend to buy large amounts of silver to use for production ahead of the lunar new year. And all of this, in combination with skepticism regarding the US market and transfer of holdings by most federal banks into gold, has led to a massive increase in precious metal prices and demand.

Trumps $12 billion critical mineral stockpile, announced today, also means big things for the commodity market. The goal is to break China's current monopoly over rare earth metals and shield American companies from any supply chain disruptions, like the CCP restricting exporters during trade disputes. This is mainly as a result of shortages experienced by American companies last year during the American-China trade war. As the government increases its involvement in securing key resources, investors are becoming more cautious regarding long-term supply stability and geopolitical risk. This uncertainty has encouraged many market participants to shift capital toward precious metals, mainly gold and silver, which are traditionally viewed as safe-haven assets during periods of political and economic tension. Overall, the policy strengthens long-term demand for gold and silver while increasing short-term market volatility.

The general idea for both why we saw this drastic increase and if it could rebound is that it has all been driven by recent unheard-of demand. And the main factors we have seen drive this demand have not changed, so there is a very realistic possibility that silver and gold could return to similar prices or even higher.