The extreme volatility in silver prices is being magnified by the growing popularity of leveraged exchange-traded products, resulting in more violent price swings than ever before. According to data compiled by Bloomberg, a sudden sharp decline in the silver price on January 30th was accelerated by massive sales from the largest such leveraged ETF—the ProShares Ultra Silver ETF, which aims to deliver twice the daily return of silver futures. As silver experienced its largest intraday drop on record, the fund was forced to mechanically reduce its futures holdings due to its daily leverage reset mechanism, unleashing a wave of selling into an already saturated market.
Based on its prospectus, the fund must rebalance its holdings based on net asset value at a specific time each afternoon. The sheer magnitude of the price drop that day meant the fund held an outsized long position, compelling it to sell an estimated $4 billion worth of silver futures to maintain its leverage target. The issuer of the fund declined to comment. Last Friday, the leveraged silver ETF plummeted by 63%.
The popularity of leveraged ETFs has surged. Data indicates that nearly a third of such products launched last year incorporate some form of leverage. For a metal like silver, which is inherently volatile and popular among retail investors, products such as the ProShares Ultra Silver ETF or the WisdomTree Silver 3x Daily Leveraged ETF have grown large enough to significantly influence intraday price movements. A record wave of call option buying—granting holders the right to buy at a preset price—has also set the stage for rapid price swings in silver. As prices rose, traders rushed to hedge their positions by buying the underlying asset, fueling last month's bullish momentum. However, when prices fell, this hedging activity shifted from buying on the way up to selling on the way down, triggering investor stop-loss orders and propagating losses throughout the system.
On Thursday, spot silver fell nearly 20% at one point, erasing its gains from the previous two days. Following this historic market rout, the white metal struggled to find price support. After a seemingly overheated, record-breaking rally, silver prices have retreated more than a third since hitting an all-time high last week. Historical volatility measures have surged dramatically, with the market experiencing its most intense turbulence since 1980. Speculative activity is severely disrupting the price discovery process for precious metals, with volatility becoming self-sustaining and detached from the physical market and its fundamental drivers.
The sharp, sudden decline in precious metals also dampened sentiment in the base metals market, with copper prices falling 2% at one point on Thursday, dropping below $13,000 per tonne. Meanwhile, spot gold fell over 3.7% in choppy trading. Analysts noted that silver has entered a phase highly driven by fund flows, where price action is dominated by speculation and systematic trading positions rather than physical supply and demand fundamentals. They pointed out that despite ongoing structural tightness, silver's high beta and strong macroeconomic correlations make it vulnerable to significant corrections at elevated price levels. Volatility is likely to remain pronounced, with upside dependent on new inflows and downside limited yet uneven, as position changes continue to drive exaggerated price swings.
Silver has always been more volatile than gold due to its smaller market size. Even so, the recent price turbulence stands out in both scale and speed, amplified by substantial speculative inflows and thin trading conditions in over-the-counter markets. The extreme volatility means banks find it difficult to trade with investors, as holding long or short positions, even temporarily, carries exceptionally high risk. Traders also indicated that rising prices have strained credit lines allocated to precious metals trading desks. Light trading volume exacerbates further volatility and means activity in derivatives markets can have an outsized impact on prices.
Market veterans suggest that such abnormal volatility is detrimental to precious metals in the long term. They warn that as investors, jewelers, and industrial users exit what feels more like a casino than a market, the landscape for silver trading could soon become barren. Traders are now watching key support levels, with a breach below a major psychological price point seen as potentially deepening risk-off sentiment across all asset classes.