Silver Crashes

After rocketing parabolic in a popular speculative mania, silver violently crashed.  It suffered some of its biggest down days ever in recent weeks, shockingly-brutal plummetings.  Silver’s past reckonings after extreme toppings failing in crashes argue this current savage selloff remains far from over.  Following rare vertical moonshots, silver has suffered big-and-fast symmetrical collapses erasing much of their blistering gains.

Even before silver’s extraordinary soaring in recent months, it has long had a cult-like following among super-bullish enthusiasts.  They brook no dissent from contrarians, attacking any opinions not advancing silver’s to-the-moon party line.  But like all markets, volatile silver prices perpetually flow and ebb.  Upside extremes are always followed by severe selloffs.  I warned about silver’s extreme parabola in mid-January...

“The bottom line is silver has skyrocketed into a dangerous extreme parabola.  Silver just soared to its most-overbought levels witnessed since just after early 1980’s notorious bubble.  In just a couple months after that one, silver hemorrhaged over 3/4ths of its value.  And silver couldn’t decisively break out above that original parabolic peak until nearly 46 years later.  Vertical moonshots are super-risky, nothing to be trifled with.”

I got a lot of flak for that essay, which I knew was coming when I dared write it.  Despite silver parabolas always ending in tears, I’ve advocated silver investment for over a quarter-century.  I first recommended physical silver bullion as a long-term investment in our monthly subscription newsletter in November 2001, when silver traded at just $4.20 per ounce!  I’ve continuously maintained that recommendation ever since.

But silver’s extreme volatility has always been a double-edged sword.  Enormous vertical rallies like this recent one have attracted many true believers.  But the extreme technicals and overpowering herd greed at silver’s lofty peaks necessitate subsequent rebalancing selloffs to normalize all that.  They are usually symmetrical to those red-hot ascents, unbelievably violent.  Silver’s recent crashes proved that again in spades.

From late October to late January, silver skyrocketed a jaw-dropping 149.0% in just 3.1 months!  That astounding run included 23 new all-time-record closes, achieved on nearly 3/8ths of its trading days.  My quarter-century-plus of historical market studies have led me to define parabolas as doublings within two-to-three months following massive bull runs.  Silver certainly fit that bill by mid-January, its extremes were crazy.

Absolute price levels don’t matter much for near-term market direction, just how fast they got where they are.  Overboughtness-oversoldness indicators can be used to measure that empirically.  My favorite is simple, dividing silver’s daily closes by their 200-day moving average.  These are ideal technical baselines, moving slowly enough to illuminate big-and-fast moves yet still gradually evolving to reflect prevailing prices.

The resulting Relative Silver or rSilver multiples effectively recast prices as constant percentages off their 200dma.  Charting those over time reveals how extreme silver moves are.  And holy cow silver stretched to popular-speculative-mania bubble-grade overboughtness in late January.  Astoundingly when silver peaked on the 28th, it had skyrocketed 144.3% above its 200dma!  That was exceedingly-rarefied territory.

Silver usually acts like a leveraged play on gold, amplifying its material moves.  Dollar-gold history was effectively born in 1971, when the dollar was severed from its gold standard.  Before that gold prices had been hard-pegged to the dollar.  Interestingly the dollar was originally on a silver standard for the better part of a century into the 1870s!  For analysis purposes now, the modern silver era also effectively started in 1971.

In the vast 55.1 years since then, late January 2026’s eye-popping 2.443x rSilver read ranked as silver’s 16th-most-overbought close!  That is top-0.12%, utterly-ludicrous overboughtness levels.  The last time silver rocketed parabolic that far above its 200dma was fully 46.0 years earlier in late January 1980!  All 15 days ever of more-extreme silver overboughtness occurred in that single month, in an infamous silver bubble.

That sure didn’t end well, so in our weekly subscription newsletter I added a put-options trade on the leading and dominant SLV silver ETF heading into silver’s parabolic topping.  Extreme overboughtness never lasts long, and the more extreme it gets the more severe the guaranteed subsequent reckoning.  But even knowing all this history and actively betting against silver, what happened next still proved shocking.

This chart shows silver technicals in the last several years or so.  Silver’s parabolic moonshot launching in late October on frenzied Chinese buying utterly dominates all this price action.  Again silver skyrocketed 149.0% in just 3.1 months to 144.3% above its 200dma, which was unprecedented outside of January 1980.  The early reckoning was way more brutal than I feared, a sledgehammer to the skulls of late silver chasers.

On January 30th alone, silver crashed a catastrophic 27.5%!  In stock markets, crashes are defined as 20%+ losses in a couple trading days or less.  That single-day plummeting obliterated over 4/9ths of silver’s popular-speculative-mania gains that took 63 trading days to accrue!  That epic down day ranked as silver’s second-largest ever since 1971, narrowly trailing a 30.8% monster back in late March 1980.

What the heck just crashed silver?  Gold plummeted 10.3% that day fueled by heavy selling overnight in China!  Gold had also entered a popular speculative mania in mid-January, mostly driven by frenzied Chinese buying overnight into Mondays when China’s trading dominates global markets.  I wrote entire essays in late January analyzing gold’s China takeover and the resulting dangerous popular speculative mania.

That 10.3% gold drop ranked as its third-largest down day since 1971, which means ever in dollar terms!  The biggest was a 13.2% single-day crash in January 1980.  Silver’s recent 27.5% crash amplified gold’s terrible down day by 2.7x, which isn’t too far beyond historical norms.  Generally when silver is being actively traded rather than drifting like most of its history, it roughly doubles the yellow metal’s material moves.

Silver fell another 4.3% the next trading day, bounced 6.1% and 2.3% in the subsequent couple, but then pretty much crashed again last Thursday the 5th plummeting another 16.0%!  This proved the only cluster of extreme crash-grade down days outside the immediate aftermath of January 1980’s notorious bubble.  Silver crashed 25.0% the day after that one peaked, then started grinding sideways-to-lower in a reckoning.

Silver didn’t suffer its next 10%+ down day until mid-March, an 11.8% one.  The following week silver saw a crash cluster with two 15.4% and 26.2% plummetings across three trading days!  Silver bounced hard out of those, but crashed again later that same month.  Late March 1980 saw three back-to-back daily crashes of a soul-crushing 17.8%, 16.0%, and 30.8%!  The latter finally carved silver’s initial post-bubble bottom.

The butcher’s bill in that reckoning was far steeper than most traders could ever imagine paying, silver cratered an astonishing 76.9% in just 2.2 months!  A similar catastrophic drawdown today would hammer silver all the way back down near $26.86.  Thankfully today’s reckoning shouldn’t need to be anywhere near that severe, as silver’s parabola into January 2026 was nowhere near as extreme as into January 1980.

In its terminal three, two, and one months into this recent peak, silver soared 149.0%, 126.4%, and 48.2%.  That again catapulted rSilver to 2.443x, silver was stretched 144.3% above its baseline 200dma.  Yet way back into January 1980, silver’s terminal three-, two-, and one-month gains skyrocketed an incredible 179.2%, 196.1%, and 103.8%!  That left silver a record 231.8% above its 200dma, a crazy rSilver peak of 3.318x!

Today’s less-extreme-than-that-last-one parabolic topping implies silver’s reckoning to rebalance away all the recent speculative excesses should be proportionally-less-extreme.  But that doesn’t mean it won’t still be brutal.  As of silver’s second crash day last Thursday, it was already down 36.9% in just six trading days!  Merely to get back to late-October levels birthing this mania, silver would have to plummet fully 59.8%!

Gold’s own young drawdown argues for bigger silver losses to come.  In last week’s essay, I analyzed all of gold’s drawdowns after extreme toppings since 1971.  The ten-biggest cyclical gold bulls and ten-most-overbought-topping ones excluding this latest monster both averaged big-and-fast subsequent drawdowns near 21% in just a couple months.  Today’s could easily prove worse after gold’s fifth-most-overbought topping.

In those 3.1 months into late January when silver skyrocketed 149.0%, it amplified gold’s also-big mania surge of 34.8% by an extreme 4.3x!  So it wouldn’t surprise me at all for silver to at least be cut in half from late January’s extraordinary peak.  A 20% gold drawdown silver leverages 2.5x would yield that, or a 25% one amplified 2.0x.  A 50% silver reckoning would slam it back down near $58, way lower still from here.

This essay’s title can intentionally be interpreted two ways, Silver Crashes with the second word either a verb or noun.  We’ve looked into the former, but the latter is also interesting.  Since January 1971, silver has only suffered 28 10%+ down days or 0.2% of all the trading days in that vast 55.1-year span.  Again this recent 27.5% crash was silver’s second-biggest daily plummeting ever, and last Thursday’s the ninth.

Of the top 11, fully 6 occurred in the immediate aftermath of January 1980’s bubble.  A majority 14 of the top 25 happened in the 1970s and 1980s.  I was curious to see how silver fared surrounding its more-recent crash-grade down days in this last quarter-century.  Ranking as its 8th largest was another barely-bigger 16.0% one in mid-October 2008.  That one happened during a full-blown general-stock-market panic.

A stock panic is defined as a 20%+ plummeting in broader stock markets in two weeks or less, looser than a crash’s two days or less.  That one capped silver collapsing 51.0% in just 7.2 months, yet it still wasn’t the bottom.  Over the next 1.3 months after that crash, silver would still grind another 12.3% lower.  That one was nothing like today, with stock markets now at all-time highs which is the polar opposite of a panic.

Mid-August 2020 saw silver’s 12th-biggest down day ever with a 15.2% crash-grade plummeting.  Again a serious gold down day was the driver, with it falling 5.9% which silver amplified 2.6x.  Much like January 2026’s crash, that one happened right after a major silver peak.  While silver bounced out of that crash, over the next 1.4 months it would grind another 7.8% under that crash-day close.  Crashes mostly don’t end selloffs.

Silver’s 13th-worst daily drop since 1971 ignited in April 2006, a 14.6% plummeting.  That was also the very next day out of a major silver topping, an initial crash.  While silver bounced out of that to a new high, by just 1.8 months after that crash silver plunged another 21.9% from that crash-day close.  Yet another crash happened early in a major selloff rather than marking its end, suggesting more selling is coming today.

Silver plunged 13.6% in a single day in late September 2011, ranking 14th in its crash down days.  Gold plunged 5.0% that day, which silver amplified a similar 2.7x.  That silver crash wasn’t right after a major topping, but over a month into a selloff after one like that January-1980 aftermath.  But silver still didn’t bottom on that crash day, slumping another 12.8% lower than its crash close over the following 3.2 months.

Silver’s 15th-biggest daily loss of 13.4% happened in early October 2008, in that same stock panic from that other 16.0% crash that same month.  But the 16th largest was a separate episode, a 13.3% daily plummeting in mid-April 2013.  That one came well into one of the worst precious-metals bears of this modern era, fully 4.5 months after silver peaked.  Yet it was no climax, silver fell another 18.4% lower in 2.4 months.

Historically silver’s biggest down days mostly haven’t marked the ends of major selloffs, with the notable exception of that lone three-consecutive-day crash cluster in late March 1980.  And that again climaxed a catastrophic 76.9% silver gutting in just 2.2 months.  All the rest of silver’s modern crashes came early or in the middle of major drawdowns, not their ends!  Trader psychology and herd sentiment can explain this.

When prices rocket vertical to new record or major secular highs like last month, greed and bullishness soar to extremes.  Traders late to the speculative-mania parties rush to chase surging upside momentum, buying in super-high.  That exhausts all available near-term buying, leaving only selling that rarely flares intensely enough to snowball into huge crash-grade down days.  Those disasters naturally really scare traders.

But even they aren’t enough to fully rebalance extreme herd sentiment, as evidenced by sharp bounces out of those crash days.  It’s not just the depth of selloffs that bleeds away excessive greed, but selling persisting for some time.  That gradually erodes the confidence of still-bullish traders rushing to buy the dips, eventually replacing greed with fear.  Silver crash days do much rebalancing work, but not enough alone.

Selloffs out of extreme toppings don’t end until herd greed has morphed to fear.  Traders not only have to be beaten until they stop assuming blistering upside will soon return, but they have to start worrying about selling cascading or at least persisting for some time.  Traders have to become convinced as a group that silver is much more likely to continue lower than resume surging higher, and that sentiment shift takes time.

So despite silver just plummeting 36.9% in only six trading days including two crash ones, that likely isn’t enough to sufficiently rebalance late January’s extreme technicals and sentiment.  After a stunning 46.0-year high in silver overboughtness, a big-and-fast selloff proportional to silver’s parabolic mania ascent into that peak is necessary.  Again that ought to hammer silver down at least 50% before this runs its course!

During popular speculative manias and their aftermaths, fundamentals don’t matter.  Global supply and demand never shift fast enough to justify parabolic gains nor subsequent symmetrical collapses.  Yet euphoric traders always try to use fundamental arguments to justify buying super-high, proclaiming this time it’s different.  But it never is, as the greed and fear in human hearts and our herd behavior never changes.

So all the ongoing rationalizations that silver demand is soaring for the AI-data-center buildout therefore silver prices should resume soaring much higher aren’t righteous.  While there is probably some bump in overall demand, it has to fall massively short of justifying silver doubling-plus in just several months.  That was all a sentiment thing, mostly fueled by frenzied Chinese buying until American traders joined in in January.

These recent silver crashes confirm that was a dangerous popular speculative mania, a bubble that burst.  And the great majority of past silver crashes happened earlier in major selloffs, not later climaxing them.  So if you are interested in deploying capital in silver or its miners’ stocks, odds are their prices will soon head much lower.  There’s no sense buying higher now with better entry points likely coming in the near-future.

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The bottom line is silver just crashed, suffering two of its biggest daily drops ever.  Those erupted right out of a popular-speculative-mania topping, where silver way more than doubled in just a few months.  After hitting almost-half-century overboughtness extremes, a serious reckoning is necessary to rebalance away those and super-greedy herd sentiment.  Despite crash-grade down days, that process still takes some time.

Most past silver crashes erupted out of major toppings, earlier in subsequent serious selloffs.  While silver bounced hard out of those wild daily drops, they didn’t flag the ends of those drawdowns.  Silver usually kept on grinding considerably lower after crashes, gradually normalizing sentiment.  Rebalancings take time, resulting in deeper and longer symmetrical selloffs after extreme toppings.  Silver’s current one isn’t over.

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