Silver’s Rally Stirs Memories of Historic Price Collapses
After surging to an 11-year high, traders are recalling how past bull runs in 1980 and 2011 were dramatically halted by sharp increases in futures market margin requirements.
Silver has been one of the market's star performers in 2024, with a powerful rally that pushed the metal to an 11-year high this spring. The iShares Silver Trust (SLV), a popular ETF that tracks the commodity's price, has surged as investors pile in, betting on a combination of robust industrial demand and its traditional role as an inflation hedge.
However, the rally's sheer velocity is sparking a sense of déjà vu among seasoned traders, who are nervously eyeing the futures market and recalling the ghosts of silver rallies past. The meteoric rises of 1980 and 2011 both ended in tears, and the weapon that brought them down was the same: a sudden hike in margin requirements.
Driving the current optimism is a compelling fundamental story. Silver is a critical component in green technologies, including solar panels and electric vehicles. Its use in electronics and 5G infrastructure adds to a demand picture that looks set to outstrip a structurally constrained supply for years to come. This has created a strong tailwind, attracting both industrial buyers and financial investors.
Yet, as the price climbs, so does the speculative froth. This is where the Chicago Mercantile Exchange (CME), which sets the rules for trading silver futures, enters the picture. To curb excessive speculation and ensure market stability, the exchange can increase the amount of collateral—or "margin"—that traders must post to hold their positions.
This is not a theoretical risk. It has been a primary catalyst for ending silver's most epic bull runs. In 1980, when the Hunt brothers famously tried to corner the market, a series of margin hikes by the COMEX exchange triggered a collapse from nearly $50 an ounce to just over $10 in a matter of days. A similar story unfolded in 2011, when silver again approached the $50 mark, only for a series of five margin hikes in two weeks to pop the speculative bubble, sending the price crashing by more than 30%.
This history is not lost on the current market. In fact, chatter about a future margin-induced correction has become a prevalent narrative. Several market analyses and commentary pieces have pointed to a hypothetical scenario in late 2025 where a speculative frenzy drives silver to unprecedented highs above $80 an ounce, prompting the CME to intervene. According to a Forbes report, this could lead to a dramatic plunge, with some analysts predicting a drop of over 10% almost immediately after such a hike.
While this scenario remains speculative, it highlights the key risk facing silver investors today. The long-term case may be sound, but the path higher is likely to be volatile. The rapid influx of speculative money has created a fragile environment where a regulatory tap on the brakes could easily trigger a cascade of selling as leveraged traders are forced to liquidate their positions.
For now, the bulls remain in control, driven by a narrative of persistent supply deficits and burgeoning technological demand. But the lesson from history is clear: the faster a market rises, the harder it can fall. Investors would do well to remember that in the silver market, fundamental demand and speculative fervor are two different things, and the lever that separates them is often held by the CME.