Heavy leverage, margin calls, claims of manipulation rock silver spot prices

Silver prices crash sharply.

• Silver prices dropped 40% in 3 days, erasing over $10 trillion in value.
• Physical silver trades at high premiums, indicating strong demand despite spot crash.
• High leverage, market manipulation blamed for sharp fall in silver, gold prices

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Silver prices have crashed nearly 35 percent in just three sessions, triggering heavy losses across precious metals markets and wiping out over $10 trillion in value alongside gold. While spot prices plunged, physical silver continues to trade at steep premiums across global markets.

Currently, spot prices of silver are quoting roughly $79 per ounce, compared with $118 per ounce a few days ago. However, the physical price of silver is around $101. Usually, the premium between physical silver and the spot price is around $0.10 to $0.50 per ounce, but the higher premiums for physical silver indicate that demand for the white metal remains robust in physical markets, while spot prices are seeing wild swings.

Traders and investors sitting on heavy losses after the ~35 percent fall in silver prices and a 16 percent fall in gold prices believe that serious market manipulation, along with leverage, are the driving factors behind the crash.

Around 400 paper contracts exist for every ounce of physical silver, and traders believe that the overleveraged nature of the metal is among the key reasons for the sharp ~40 percent fall seen over the past three sessions.

In early January 2026, for every one ounce of physical silver in COMEX-registered vaults, there were roughly 350-360 ounces of paper contracts. As of early January 2026, roughly 508 million ounces of paper silver (March 2026 contract) existed against only 113-124 million ounces of registered, deliverable silver. For gold, the ratio of physical gold to paper contracts is roughly 1:200 ounces.

The reason behind the use of leverage in spot markets is that most holders of silver contracts never intend to take delivery; the contracts are expected to be settled in the cash markets. “Paper supply is effectively infinite, as banks can create futures contracts or OTC swaps. This supply of paper comes without mining a single ounce of silver,” said Bhavik Patel of Tradebulls Securities.

This system enables banks to leverage positions without owning the metal, profiting from trades and leased silver. What this high ratio also implies is that if a small percentage of paper contract holders demand physical delivery, the COMEX-registered inventory would likely be exhausted.

Leveraged long positions are seeing margin calls to maintain their positions. This, in turn, leads to forced selling, pushing prices down. The crash, therefore, has come not because silver is unwanted, but because paper positions are being forced to close.

“Speculation from investors using high leverage has driven prices, but a recent crash resulted from a stronger US dollar and increased margin requirements, leading to forced selling among traders,” said Aamir Makda, commodities analyst at Choice Broking.

According to some experts, the move indicates manipulation. In a post on social media platform X, formerly known as Twitter, market expert Manu Rishi Gupta said, “Retail investors can’t slam prices like this. Over the last 10 years, big banks paid $1.3 billion in fines for spoofing silver. Yesterday, with China closed and late LME trading, the ‘Big Boys’ likely dumped to spook investors out, clearing shorts or loading longs.”

With silver prices having rallied so much, Gupta said it is pertinent to ask a question: “When LME trading was thin and China was shut, who really slammed the price? It wasn’t retail. Price shocks often serve one purpose: scare weak hands so that large players can exit shorts and quietly build long positions.”

Therefore, the recent stress also reflects that exchanges are struggling to meet contractual obligations, as paper contract holders are starting to demand physical delivery and the system can’t keep up.

Makda added that the paper market is currently trying to find a floor, but the physical shortage hasn’t gone away, especially with China’s new export restrictions that kicked in last month. What the premiums in physical demand indicate, according to experts, is that paper silver was manipulated so that large institutions could close their short positions without incurring significant losses, while retailers were left bleeding.

However, silver prices may have crashed now, but in 10 years, they could be at $300 or $500 per ounce, and retailers may kick themselves for being “shaken out by the pros who do this for a living,” quipped Gupta. He added that despite the crash in prices, silver and gold are still up 270 percent and 140 percent, respectively, over the last two years.

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