Why did gold and silver sell off on Monday?
If I’ve been asked that question once, I’ve been asked 50 times.
The more relevant question is why gold and silver have been surging for two years.
However, I do understand why people are asking about the selloff. It was significant.
On Friday, silver surged to a record of over $80 an ounce. And then on Monday, it dropped about 9 percent back to $72. Gold also tanked, dropping from $4,500 and through the $4,400 support level and all the way to around $4,330.
People freaked. I know this because I saw the social media comments and got several emails and text messages.
I think a lot of people who follow precious metals have been browbeaten into perpetual pessimism.
The steep selloff was notable. However, look at the bigger picture. Just three months ago, silver was below $50, and the naysayers were saying it would never break out above that resistance level. And a year ago, silver was under $30. This time last year, gold was barely above $2,600.
I’m not so sure the negativity is warranted – at least not yet.
Keep in mind, corrections -- even big ones -- are normal and healthy in a bull market. The important thing is to keep your eye on the fundamentals. Did anything significant change on Monday to drive gold and silver down? Did somebody suddenly create a bunch of silver out of thin air? Did the government end its inflationary policies? Did the dollar suddenly become a trusted store of value?
If the answer is no, it was probably just a correction.
What Sparked the Correction?
With silver and gold both surging significantly higher over the past couple of weeks, a correction was inevitable. When an asset price quickly rises, at some point, it will ultimately become oversold. Investors book profits, and the price corrects.
But there was a policy change that sparked the recent selloff.
On Friday, the Chicago Mercantile Exchange (CME) raised its reserve requirements for futures contracts. In effect, this means investors are now required to post more cash up front to hedge against defaults.
The CME is one of the world’s largest trading floors for commodities.
The CME said it was raising margin requirements “per the normal review of market volatility.”
In practice, futures positions are typically leveraged, meaning the trader doesn’t pay the full contract value up front. They post what is known as a performance bond or margin.
When CME raises the margin requirements, every leveraged trader must either deposit more cash or eligible collateral into his account or reduce or close his positions to get within the new requirements. If a leveraged trader is long silver (meaning he is betting the price will go up) and doesn’t want to (or can’t) add cash, he must sell the contract. When a lot of traders do so at the same time, the futures price drops.
Spot and futures prices are tightly linked through arbitrage/hedging. When future prices dump, spot prices typically follow because dealers, ETFs, and hedgers reprice off the futures curve, allowing spreads to adjust quickly.
The CME’s move was amplified by profit-taking, especially as prices began to fall.
U.S. Market Driving the Selloff
It’s interesting to note that after the big drop on Monday, both gold and silver recovered in overnight trading. Early Monday morning, gold was back above $4,400, and silver was knocking on the door of $77. However, as soon as the U.S. market opened, both metals gave up some of those overnight gains. This indicates that there is plenty of bullish sentiment in Asian and European markets, and bearishness is predominantly in North America.
There will almost certainly be additional corrections as we move into 2026. There will likely be even bigger selloffs. It’s important to always keep your eyes on the fundamentals. Don’t let corrections spook you. They actually present good buying opportunities.
Mike Maharrey is a journalist and market analyst for Money Metals with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
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