Precious metals investors witnessed a dramatic reversal of fortunes on Monday, December 29, as gold and silver prices staged a sharp retreat from their record-breaking highs. The prolonged rally in both metals triggered significant profit booking by traders, while easing geopolitical tensions and news of impending export restrictions from China added downward pressure.
Precipitous Fall from Record Highs
The sell-off was particularly brutal for silver. After a stellar run that saw it cross the monumental ₹2.5 lakh per kg mark for the first time ever, the metal took a severe tumble. March delivery contracts, which had soared by ₹14,400 during the day to hit a peak of ₹254,174, reversed course dramatically. Prices crashed by a staggering ₹28,674 per kg, or 10.3%, to touch a day's low of ₹2,25,500.
This volatility followed an explosive week where silver had gained ₹31,348, a move partly attributed to critically low inventories exacerbated by strong flows into exchange-traded funds and robust exports to India.
Gold Also Succumbs to Selling Pressure
Gold was not spared from the downturn, though its fall was less steep. February gold futures on the Multi Commodity Exchange (MCX) retreated from the day's high of ₹1,40,444 per 10 grams. Contracts fell by approximately ₹4,273, marking a decline of around 2.10%, to reach an intraday low of ₹1,36,171.
The correction in gold prices highlights how even the traditional safe-haven asset is susceptible to profit-taking after a sustained rally, especially when external catalysts emerge.
Key Factors Driving the Decline
Analysts pointed to a confluence of factors behind Monday's sharp correction. China's decision to restrict silver exports from January 1 via a state licensing mechanism was a major trigger. As the world's second-largest producer but also its top consumer, China's move signals tighter global supply, yet it initially prompted a 'sell the news' reaction.
Elon Musk amplified concerns over the weekend, commenting on the Chinese restrictions by stating, "This is not good. Silver is needed in many industrial processes."
On the geopolitical front, reduced tensions also dampened safe-haven demand. U.S. President Donald Trump's statement on Sunday about moving "very close" to an agreement to end the war in Ukraine made investors slightly more risk-on, diverting flows away from precious metals.
Adding technical pressure, the CME Group raised margin requirements for trading. The increase to $25,000 per contract from $20,000, effective Monday, made holding positions more expensive, likely forcing some leveraged traders to exit.
Outlook and Investor Advisory
The wild swings underscore the extreme volatility currently characterizing the precious metals market. While the long-term fundamentals for silver, given its industrial applications, and gold, as an inflation hedge, remain intact, short-term moves can be erratic. The events of Monday demonstrate how markets can swiftly absorb and react to a mix of profit-booking, geopolitical developments, and regulatory changes.
Investors are strongly advised to consult with certified financial experts and conduct thorough research before making any investment decisions in such a volatile environment.
