Author：Currency Explorer

Affected by liquidity shortages, silver prices fluctuated wildly, plunging nearly 10% on Friday before rebounding rapidly. The precious metals market is currently struggling to find a bottom, with volatility continuing to increase.

Spot silver rose as much as 6.2% in Asian trading on Friday, after falling as low as $64 an ounce. The previous trading day, silver prices plunged nearly 20%, erasing all gains from last month's impressive rally. Gold prices also rebounded after an early decline.

Silver prices have historically fluctuated more dramatically than gold prices, due to its smaller market size and relatively lower liquidity.However, the recent price volatility has set a record for the largest fluctuations since 1980, with particularly notable magnitude and speed.The influx of speculative funds and the further contraction of liquidity in over-the-counter trading have exacerbated this situation.Since hitting a record high on January 29, silver prices have fallen by more than a third.

Ole Hansen, head of commodities strategy at Saxo Bank AS, stated in a report: "When volatility rises, market makers naturally widen spreads and reduce balance sheet usage, which makes..."When the market needs liquidity the most, liquidity is actually at its weakest.He said,Before market order is restored, "the risk of volatility will continue to reinforce itself."

Over the past week, buying interest in the Chinese market has shrunk significantly, making it difficult for silver to find effective support.Domestic silver prices have turned to a discount relative to international benchmark prices, with sharp market fluctuations deterring buyers. Open interest in silver on the Shanghai Futures Exchange has fallen to a more than four-year low, reflecting that investors are continuously closing out their positions.

Jinrui Futures analyst Zijie Wu stated, "Long positions were forced to cut losses, while short positions began to take profits." He added,With the Spring Festival holiday starting on February 16th approaching, investors are inclined to maintain a light position during the holiday.

Libertas Wealth Management)President and Senior Financial Advisor Adam Koos stated,The extreme fluctuations in silver were "more driven by open interest and volatility factors than by sudden changes in the physical metals market."

Gold vs. Silver

The multi-year bull market in precious metals accelerated last month, supported by escalating geopolitical risks, growing market concerns about the Federal Reserve's independence, and a surge in speculative buying.

Throughout January, investors continued to increase their holdings of precious metals, making large purchases of leveraged exchange-traded products and call options. However, this rally came to an abrupt halt recently, with silver recording its largest single-day drop in history on January 30, and gold experiencing its biggest single-day decline since 2013. Since then, the market has been in a state of extreme volatility.

However, the more liquid gold market outperformed silver. This week, several banks and asset management institutions reiterated their long-term bullish view on gold.Fidelity InternationalA fund manager who liquidated his positions before this round of market crash said he is ready to buy back in.Pacific Investment Management CompanyThe head of the commodities portfolio management team also believes that the upward trend in gold has not yet been broken.

Michael Armbruster, co-founder and managing partner of futures brokerage firm Altavest, said,Currently, the volatility of silver is almost three times that of gold.

On Thursday, the volatility index for the Chicago Board Options Exchange's silver ETF remained around 95, while the volatility index for the gold ETF was only around 36.

Aakash Doshi, Global Head of Gold and Metals Strategy at State Street Global Advisors, points out that high volatility is not unique to the silver market this year. Looking back at weekly data from the 1980s onwards...Silver prices are significantly more volatile than gold and the S&P 500 index.Meanwhile, the volatility of gold was lower than that of the stock market during the same period.

He stated that, in dollar terms, silver has poorer financial liquidity, a smaller physical market, and its price is more driven by a "pro-cyclical growth narrative," potentially leading to larger pullbacks during periods of soaring volatility.

Adam Koos also points out that a large number of short-term traders, hedge funds, and leveraged traders participate in the silver market, so these positions must be adjusted quickly when prices begin to change, which further amplifies price volatility.

Akash Doshi stated that while gold can also be used as a liquidity hedge,Compared to silver, gold is a "core asset in investment portfolios," and rising demand for gold from central banks around the world has solidified the bottom of gold prices and suppressed its downward volatility.

Adam Koos added that this is because gold is held primarily by central banks, institutional investors, and long-term allocators, making its price less sensitive to short-term market events.

This shows that although gold and silver face the same macroeconomic background, they have two "distinct market characteristics" as Adam Coase described.

From the overall perspective of the precious metals market, silver's recent surge may have been too rapid and excessive, but gold prices are still likely to rise rather than fall.

Akash Doshi stated thatAfter a pullback in precious metal prices from late January to early February, gold appears to have found “buying on dips and support” in the $4,500 to $5,000 per ounce range.He believes thatThe probability of gold prices rising to $6,000 per ounce in the next 6 to 12 months is far higher than the probability of them falling to $4,000 per ounce.

However, he also admitted that "considering the recent surge in market volatility, investors' continued risk-averse and deleveraging efforts, and the market's demand for liquidity..."Gold's short-term trend may still be volatile..

Akash Doshi noted that silver's volatility was even more pronounced, following its historic rally in January.This stock has entered a bear market phase.

He stated that the price movement of silver may have already deviated from fundamentals. From a fundamental perspective,Its reasonable price range should be between $70 and $80 per ounce.Instead of the previous $110 to $120.