Retail investors who piled into the blistering bullion rally were left nursing steep losses after MCX silver and gold futures crashed an unprecedented 27% and 12%, respectively, on Friday. The full impact on bullish positions is likely to become clearer when markets reopen on Sunday.
Indian stock and commodity exchanges will remain open on Sunday for the presentation of the 2026 Union Budget. A rush for the exit by trapped bulls could push bullion into fresh lower circuits, after a series of lower circuits on Friday night.
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. Gold futures on Comex closed about 8% lower.
Friday’s price damage was severe. 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. In response, 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.
Dollar jolt
The crash followed margin hikes and price limits imposed by global exchanges such as the Shanghai Futures Exchange, along with 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, whose term ends on 15 May.
A stronger dollar typically crimps demand for dollar-denominated assets among holders of other currencies, pushing asset prices lower.
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.
MCX imposes a daily price limit of 9% on gold and silver contracts. If global prices move beyond this threshold, limits are relaxed in steps of 3% after a mandatory 15-minute cooling-off period.
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.
Bulls hit by 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 theclearing 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.”
He added that he does not foresee any “systemic issues” when markets reopen on Sunday, citing the exchange’s robust risk management framework. MCX uses SPAN — standardised portfolio analysis of risk — under which margins rise automatically with volatility.
“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,” Mathur said. “The painful lessons have been learnt.”
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.
Friday’s 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.
A third broker said 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, the broker said.
“Investors who jumped into gold and silver out of FOMO have been the worst hit,” said Shripal Shah, MD & CEO of Kotak Securities.
ETF exit trap
Friday's sharp crash might also trigger confusion for holders of silver exchange-traded funds (ETFs), many of whom may find themselves unable to exit positions when markets reopen on Sunday.
This is because the 20% circuit limits for gold and silver ETFs are calculated based on the fund’s net asset value (NAV) on a trade-minus-two (T-2) basis, according to a fund manager who requested anonymity.
So, 20% below Thursday NAV is higher than the closing price of Friday 3:30 pm.
For instance, based on Thursday’s NAV of ₹364.56, the lower circuit for Kotak Mutual Fund’s silver ETF on Sunday works out to ₹291.65. However, the ETF closed at ₹286.93 on Friday. This implies that Sunday’s lower circuit would be about 1.6% above the last traded price, making it unlikely that investors will be able to sell their holdings.
“One option is for silver ETF holders to approach asset management companies (AMCs) and have them to sell their units to market makers,” said Satish Dondapati, fund manager at Kotak Mahindra Mutual Fund. “But market makers would typically agree to buy only at a huge discount to exchange prices, closer to spot prices.”
The market makers are bullion dealers who provide two-way quotes for buying and selling bullion to the AMCs.
NAV of an ETF represents the value of its assets minus liabilities.