Sunday Blues Await Retail Gold and Silver Bulls After Historic Market Crash
The blistering rally in precious metals came to a crashing halt on Friday, leaving retail investors who piled into gold and silver nursing steep losses. MCX silver and gold futures plunged an unprecedented 27% and 12% respectively, wiping out capital for many traders who feared missing the rally.
Unprecedented Price Plunge
Friday's price damage was severe and historic. Silver March futures tanked 27%, or ₹1.08 lakh, to ₹2.92 lakh per kg, while gold February futures plunged 12%, or over ₹20,000, to ₹1.49 lakh per 10 grams. This crash came just a day after gold and silver generic contracts hit record highs of ₹1.8 lakh per 10 grams and ₹4.2 lakh per kg respectively.
The full impact on bullish positions is likely to become clearer when markets reopen on Sunday. Indian stock and commodity exchanges will remain open for the presentation of the 2026 Union Budget, and a rush for the exit by trapped bulls could push bullion into fresh lower circuits.
Margin Hikes and Global Factors
In response to the volatility, MCX's clearing corporation doubled the minimum margins required to trade silver and gold futures to 62.4% and 18.5% respectively by the close of trade at 11:55 pm IST. The crash followed margin hikes and price limits imposed by global exchanges such as the Shanghai Futures Exchange.
A sharp strengthening of the dollar after US President Donald Trump nominated inflation hawk Kevin Warsh as the successor to Federal Reserve chair Jerome Powell added to the pressure. A stronger dollar typically crimps demand for dollar-denominated assets among holders of other currencies, pushing asset prices lower.
Operational Challenges and Risk Management
For Indian traders, the damage was amplified as the sharp sell-off unfolded after 8 pm IST and continued until the MCX close at 11:55 pm, tracking steep declines on overseas exchanges such as London-based LME and Comex. Silver bulls face an added risk as prices on the US-based commodity derivatives exchange Comex fell 31% on Friday, compared with MCX silver's 27% slide. This steeper fall suggests MCX silver could open another 4% lower on Sunday.
MCX imposes a daily price limit of 9% on gold and silver contracts. However, as both metals fell far beyond 9%, brokers were unable to square off all long positions that had not topped up margins, owing to repeated cooling-off periods. Excluding intraday lows, silver futures hit twelve lower circuits, while gold hit four.
Double Whammy for Bulls
Bulls were hit by a double whammy. First, margins of long-side traders were eroded by mark-to-market losses—the difference between prices they had entered into and Friday's settlement prices. Second, if bulls can't meet their MTM obligation, they could face litigation from brokers, who in turn will have to make good the shortfall from their funds lying with the clearing corporation.
"Brokers cannot fund client margins in commodity derivatives per Sebi rules," said a broker who requested anonymity. "However, if some smaller brokers extend credit informally to clients, they could be wiped out. If clients can't pay, the risk of litigation with brokers increases."
Systemic Stability and Lessons Learned
Despite the dramatic crash, market participants expressed confidence in the system's stability. "Indian exchanges' robust margining system precludes systemic risk," said Naveen Mathur, director (commodities and currency) at Anand Rathi Group. "We have been flagging the risk to clients about the irrational exuberance in both metals, particularly silver, which had run contrary to all fundamentals. The painful lessons have been learnt."
MCX uses SPAN—standardised portfolio analysis of risk—under which margins rise automatically with volatility. However, Mathur noted that the late-night timing of margin calls could create operational challenges, the extent of which will become clearer when markets reopen on Sunday.
A third broker revealed that many intermediaries were put on 'risk-reduction mode' after failing to transfer margin shortfalls from client accounts to the clearing corporation. In this mode, brokers can only square off client positions and cannot allow fresh trades until margin requirements are met.
"Investors who jumped into gold and silver out of FOMO have been the worst hit," said Shripal Shah, MD & CEO of Kotak Securities, highlighting the dangers of herd mentality in volatile markets.
As markets prepare for Sunday trading, all eyes will be on whether the unprecedented crash represents a temporary correction or the beginning of a more sustained downturn in precious metals.
