Liquidity Shock Sends Silver Into Extreme Volatility While Bitcoin Slides Below $70,000

Gerik

Summary:

Silver prices experienced one of the most violent swings in decades as thin liquidity magnified selling pressure, while Bitcoin fell sharply below $70,000, highlighting rising instability across both traditional and digital asset markets....

Silver Volatility Intensifies Under Thin Market Conditions

According to Bloomberg, silver once again demonstrated its vulnerability to liquidity shocks, plunging nearly 10% before rebounding sharply within the same trading session. Early Asian trading saw spot silver tumble toward $64 an ounce, only to reverse course and rise as much as 3.5%. This followed a dramatic 20% drop in the previous session, a move that erased all gains accumulated during January’s powerful rally. Despite the rebound, silver remains down roughly 40% from its all time peak reached on January 29, underlining the severity of the correction.

Gold showed relatively greater resilience, reversing earlier losses to post gains on Friday. This divergence reflects structural differences between the two metals rather than a fundamental shift in investor sentiment toward precious metals as a whole.

Structural Liquidity Gaps Drive Extreme Price Swings

Silver has historically exhibited sharper price movements than gold due to its smaller market size and thinner liquidity base. However, recent fluctuations stand out even by historical standards, marking the most volatile period since 1980. The speed and magnitude of the moves suggest more than routine volatility, pointing instead to a feedback loop between speculative positioning and deteriorating market depth.

As volatility rises, market makers typically widen bid ask spreads and reduce balance sheet exposure. This behavior weakens liquidity precisely when demand for it increases, creating a self reinforcing cycle in which price instability begets further instability. The result is a market environment where relatively modest flows can trigger outsized price reactions.

Speculative Positioning Unwinds After January Surge

The sharp reversal follows a multiyear bull run in precious metals that accelerated last month. That rally was supported by heightened geopolitical tensions, concerns surrounding the Federal Reserve’s institutional independence, and strong speculative participation, particularly from China. Investors accumulated significant exposure through leveraged exchange traded products and call options, amplifying upside momentum during January.

This positioning proved fragile. Silver recorded its largest ever single day drop on January 30, while gold suffered its steepest decline since 2013. Since then, trading conditions have remained highly unstable, reflecting a market in the process of rapidly shedding risk.

Chinese Demand Retreats and Removes Key Support

A notable contraction in Chinese buying over the past week has further undermined silver’s ability to stabilize. Open interest on Shanghai Futures Exchange silver contracts has fallen to the lowest level in a year, signaling widespread position unwinding rather than short term profit taking. Seasonal factors have compounded this effect, as investors traditionally reduce exposure ahead of the Lunar New Year holiday beginning February 16.

Chinese silver prices have also shifted to a discount relative to international benchmarks. This development suggests weaker domestic demand rather than purely global price pressure, reinforcing the idea that the recent selloff reflects both structural and regional dynamics.

Gold Holds Firm While Confidence in Hedging Shifts

Compared with silver, gold’s deeper and more liquid market has absorbed the volatility more effectively. Several banks and asset managers reiterated bullish long term views on gold during the week, emphasizing its structural role in portfolios. Some institutional investors who exited positions before the selloff have indicated readiness to reenter once conditions stabilize, and major asset managers continue to see gold’s longer term upward trend as intact.

At the same time, the extreme volatility across precious metals has prompted renewed debate about their effectiveness as risk hedges. In a notable departure from traditional Wall Street thinking, strategists at JPMorgan Chase suggested that Bitcoin may offer a more attractive long term alternative to gold, a view that underscores evolving perceptions of safe haven assets.

Broader Market Snapshot

As of 10:45 a.m. in Singapore, spot silver was up 1.9% at $72.28 an ounce, while gold rose 0.9% to $4,823.44. Platinum and palladium remained under pressure, extending recent losses. The Bloomberg Dollar Spot Index was broadly unchanged, indicating that currency movements were not the primary driver of precious metals volatility. Meanwhile, Bitcoin dropped 9.38%, falling below the $70,000 threshold and adding to the sense of cross market instability.

Taken together, recent price action suggests that liquidity conditions and positioning dynamics, rather than shifts in long term fundamentals, are dominating short term market behavior. Until liquidity improves and speculative exposure stabilizes, both precious metals and digital assets are likely to remain vulnerable to abrupt and amplified price swings.

Source: Bloomberg

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