Silver Surges and Then Slumps. How ‘Index Rebalancing’ Could Lead to More Wild Swings.

Silver prices swing wildly as precious metals markets face key near-term risks amid an historic year of gains. (NYSE)

Key Points

• Silver prices surge overnight before falling turning sharply lower.
• CME Group will increase initial margin requirements on silver futures by about 25%, potentially pressuring leveraged speculators.
• Upcoming commodity index rebalancing and year-end position marking are expected to increase volatility in precious metals.

Silver prices hit an all-time high in overnight trading before retreating sharply amid renewed volatility in precious metals markets following a year of historic gains.

Spot silver traded as high as $84 an ounce in the overnight session, a near 10% advance from last week’s close and a level that would have marked the strongest annual gain since 1951, before slumping more than 10% shortly afterward. The metal last traded at $72.67 an ounce, roughly 6.6% lower on the session, putting this year’s gain at about 150%.

Gold prices fell 4.4% to $4333.10 an ounce alongside pullbacks in platinum , palladium, and copper .

The early surge Monday in silver may have been tied to reports of export restrictions from China, the world’s third-largest producer, as well as comments criticizing the policy from Elon Musk. The Tesla CEO said in a post on X that “this isn’t good. Silver is needed in many industrial processes.”

“While China is a net importer—primarily of silver ore—it is also a major refiner and exporter of silver bars,” said Ole Hansen, head of commodity strategy at Saxo Bank. “In the near term, this development may add fuel to the rally and further inflate what is already looking increasingly bubblelike.”

CME Group also is set to increase initial margin requirements on silver futures contracts by around 25% starting on Monday. That could increase pressure on speculators with leveraged positions to sell in order to maintain the proper margin for futures contracts expiring in March.

Two further near-term events, the end-of-year marking of positions on Dec. 31, and the five-day rebalancing of commodities indexes managed by Bloomberg and S&P Global, set to begin on Jan. 8, also are likely to stoke more volatility in precious metals.

Around $120 billion is pegged to each index, based on cash flowing from pension funds, sovereign-wealth funds, and broader investment portfolios.

Investors likely will sell outperforming assets such as silver and gold—gold has had its best run of annual gains since 1979—in order to match the new weights assigned by both the Bloomberg Commodity Index and the S&P GSCI.

“How the market absorbs this supply could be important in setting the tone for the weeks that follow,” said Hansen at Saxo Bank.

It also will likely test the market’s conviction on silver’s longer-term thesis as both a hedge against inflation-related currency debasement as well as an industrial play on new technologies powering global growth.

Silver remains a key component in the buildout of artificial-intelligence data centers and the production of electric vehicles, both of which have intensified demand and catapulted prices over the past year. It’s also used in solar cells and anti-bacterial medical instruments.

Silver’s addition last month to the list of “critical minerals” published by the U.S. Geological Survey, and tariffs expected on the metal in 2026, have stoked an enormous wave of imports that has drained supply in other markets around the world.

Stockpiles tied to the Shanghai Futures Exchange, in fact, fell to the lowest levels since 2015 last month. Earlier this fall, the cost of borrowing physical silver to meet futures delivery obligations rose to a record high in London as inventories slumped.

The London Bullion Market Association said earlier this month that November stockpiles were at 27,187 tons, a 3.5% increase from October, with a market value of $47.1 billion.

The LBMA will publish its next supply update on Jan. 8.

Write to Martin Baccardax at martin.baccardax@barrons.com