Silver price crashes 16% on COMEX, 9% on MCX ; is it the beginning of a big fall after the Hunt Brothers-like rally?

Silver rate today declined on Thursday, February 5, snapping two sessions of gains on profit booking amid a rising dollar and easing tensions between US and Iran. Gold prices also fell in today’s trade.

Silver prices crashed 9% on MCX to day's low of ₹2,44,654 per kg while Gold fell around 3% to ₹1,48,455 per 10 gram. Meanwhile, COMEX silver prices tumbled over 16% to $73.415 while COMEX Gold prices shed 3.6% to $4,805.

However, in the international markets, after rising in early trade, Silver tumbled over 15% as renewed volatility gripped precious metals, with gold also sliding more than 3%. The white metal fell to $73.57 an ounce in Asian trade, while gold dropped to $4,971.55.

Spot silver had hit a record high of $121.64 last week while the yellow metal scaled a record peak of $5,594.82 last Thursday.

Precious metals rallied sharply last month, driven by speculative buying, geopolitical tensions, and unease over the independence of the U.S. central bank. The momentum abruptly reversed late last week, as silver recorded its steepest single-day fall on Friday and gold logged its sharpest decline in over a decade.

Investors are now assessing the policy outlook following Kevin Warsh’s nomination as Federal Reserve chair. President Donald Trump said on Wednesday he would not have put Warsh forward if he had indicated support for raising interest rates.

What happened to the silver market in 1970s?

This rally seems pretty similar to Hunt Brothers attempt to corner the silver market in 1970s. In the late 1970s, Nelson Bunker Hunt and William Herbert Hunt bought massive physical silver and futures contracts on COMEX, driving prices from around $6 to nearly $50 per ounce by 1980. When exchanges raised margin requirements, they could not meet calls, triggering a crash known as Silver Thursday. Silver prices collapsed, and the brothers faced huge losses and legal action.

Silver, gold prices: What's next for the precious metals?

Amit Goel, Chief Global Strategist at PACE 360 believes that gold and silver prices topped out last Friday morning, when both precious metals reached new highs before sharp selling was triggered.

"However, if gold rates today or in the coming one to two sessions break above $5,400 per ounce on a closing basis, we can expect the precious yellow metal to climb to a new peak. Likewise, if the silver rate today or in the next one to two sessions breaks above the $95-per-ounce mark on a closing basis, then we can expect the precious white metal to hit a new peak, provided it remains above $95 per ounce without falling below this psychological mark," Goel forecasted.

He advised investors that those who held positions at higher levels on Friday morning and are still holding them are advised to book their profit/loss on rebound and exit. Rebounds in gold and silver prices from now onwards should be treated as dead-cat bounces, where the fall will be greater than the rebound, added the expert.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.