The price of silver fell 12% in the last two trading days of last week. Gold lost 2.6%.
While gold has held up relatively well, silver fell in line with the broader stock market after President Trump announced reciprocal tariffs against nations that impose a tax on goods from the United States.
Gold bullion was exempted; coins, rounds, and bars of gold, silver, platinum, and palladium will not be subject to the tariff. This news provided some of the impetus for a sharp sell-off in the futures markets.
Long-term speculators who made leveraged bets that tariffs would drive up metal prices found themselves having gambled and lost.
The big sell-off highlights a frustrating reality about investing in bullion. In the short term, metal prices are largely affected by organizations with which bullion investors have virtually nothing in common.
Short-term price movements are driven by money flows in leveraged futures markets.
In the futures market:
*Investors tend to have a short-term mindset. The longest and highest-volume contract expires in a few months.
*Futures contracts are leveraged more than 10 to 1. This often results in weak hands. Investors who don't have the resources or guts to hold out when a bet goes wrong will sell.
*The motivations are completely different. No one buys a futures contract because they care about what they will leave to their grandchildren. In fact, most trades are not even carried out by humans; they are often carried out by algorithms or machines.