Silver once again reminded investors why it carries a reputation for instability. Prices lurched sharply between gains and losses, at one point plunging nearly 10% before rebounding, as thin liquidity left the market struggling to establish a floor. In Asian trading on Friday, spot silver jumped as much as 6.2% after earlier sliding toward $64 an ounce, following a brutal 20% drop in the previous session that erased all gains from last month’s rally.

Liquidity Shock and Market Structure Stress

Silver’s smaller market size and thinner liquidity have always made it more volatile than gold, but the recent swings stand out even by historical standards. Since peaking on Jan. 29, the metal has lost more than a third of its value, marking the most dramatic fluctuations since 1980. The speed of the moves reflects a fragile market structure where over-the-counter liquidity dries up precisely when volatility spikes.

Ole Hansen, head of commodity strategy at Saxo Bank AS, noted that rising volatility forces market makers to widen spreads and pull back balance-sheet usage, worsening liquidity conditions. In such an environment, volatility can become self-reinforcing, as forced selling begets further price swings.

Speculative Momentum Unwinds

The turbulence follows a powerful rally across precious metals that accelerated last month. Heightened geopolitical risks, concerns over the Federal Reserve’s independence, and heavy speculative buying—particularly from China—pushed prices sharply higher. Investors piled into leveraged exchange-traded products and call options, leaving positioning stretched.

That momentum abruptly reversed at the end of last week. Silver suffered its largest-ever daily drop on Jan. 30, while gold recorded its steepest decline since 2013. Since then, markets have struggled to stabilize, with silver bearing the brunt of the adjustment.

China Demand Fades, Pressure Builds

A sharp pullback in Chinese buying has compounded silver’s weakness. Domestic prices have flipped to a discount relative to international benchmarks, discouraging participation amid violent price action. Open interest on the Shanghai Futures Exchange has fallen to its lowest level in more than four years, signaling widespread position closures.

Analysts say both long and short players are stepping back. Some long positions are being stopped out, while shorts lock in profits. Seasonal factors are also at play, as investors typically reduce exposure ahead of the Lunar New Year holiday, which begins Feb. 16.

Gold Holds the Line—For Now

Gold has weathered the storm more effectively, reflecting its deeper liquidity and broader institutional support. Several banks and asset managers have reiterated bullish long-term views on bullion. A fund manager at Fidelity International indicated readiness to re-enter after selling before the crash, while commodity specialists at Pacific Investment Management Co. continue to see gold’s upward trajectory as intact.

Yet even gold’s resilience has not fully dispelled doubts. Extreme volatility across precious metals has reignited debate about their effectiveness as portfolio hedges. In a notable departure from tradition, strategists at JPMorgan Chase & Co. have argued that Bitcoin may offer a more attractive long-term hedge than gold.

What Comes Next

Looking ahead, the key variable is liquidity. Until positioning normalizes and market depth improves, silver is likely to remain vulnerable to outsized moves. For investors, the episode is a reminder that leverage and thin markets can quickly overwhelm bullish narratives. Stability may return—but only once forced selling subsides and confidence cautiously rebuilds.