What Happened Behind Silver's Single-Day Plunge of 30%? BIS: Retail Investors and Leveraged ETFs Were Key Drivers

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The latest analysis from the Bank for International Settlements (BIS) points out that as gold and silver prices hit record highs, retail investors’ frenzy and their heavy reliance on leveraged ETFs became one of the key factors driving the sharp decline in gold and silver prices at the end of January this year. BIS believes that this retail-led trading behavior, amplified through leverage products, significantly increased volatility in the precious metals markets, especially putting more pressure on silver prices.

Authors Egemen Eren, Ingomar Krohn, and Karamfil Todorov of BIS’s “Quarterly Review” wrote: “After a sustained rise throughout 2025 and early 2026, the prices of precious metals like gold and silver suddenly reversed at the end of January 2026.”

They pointed out: “The frenzy driven by retail investors is increasingly expressed through exchange-traded funds (ETFs), which has laid the groundwork for extreme market volatility and continued the trend since 2025. The daily rebalancing mechanism of leveraged ETFs, along with passive liquidations triggered by margin calls, further magnified price swings, especially in the silver market.”

BIS noted that after a significant rise in 2025 and a further surge in January 2026, gold and especially silver prices plummeted rapidly at the end of January.

The report states: “Silver prices doubled in 2025 and increased by over 50% in January 2026, but by the end of January, the single-day decline reached about 30%.”

In comparison, gold’s overall trend was similar, but its decline was not as extreme as silver’s.

The authors believe that this wave of precious metal sell-off appears to coincide with market expectations of the dollar and monetary policy changes, but when viewed within a broader fundamental framework, such sharp price adjustments are not easily explained by traditional logic.

BIS analysis indicates that the sudden drop in gold and silver prices and the spike in volatility reflect a highly leveraged internal market structure.

They pointed out: “The sharp decline in precious metals prices and the surge in volatility indicate that retail fund flows, forced selling of leveraged ETFs, trend-following investors like commodity trading advisors (CTAs), and margin mechanisms collectively amplified the price swings.”

In other words, this was not just a typical profit-taking correction but more like a chain reaction triggered by high-leverage trading structures.

Main Drivers: Retail Investors, Not Institutions

BIS further states that, based on fund flow data, before this crash, the main inflows into gold and silver funds were not from large institutions but from retail investors.

The report states: “In contrast, institutional investors’ positions remained stable overall, even slightly reducing their exposure.”

Meanwhile, futures position data also show that before the correction, small speculators held significantly high leveraged long positions.

The authors noted: “‘Non-reportable positions’—usually representing smaller investors—held long futures positions in silver before the pullback. As prices plunged and exchanges increased margin requirements, these investors likely had to quickly reduce their positions.”

Additionally, “managed funds,” including CTAs and some institutional investors, also cut their long positions, while traders reduced short positions to provide market liquidity.

ETF Premiums Indicate Overheated Buying

BIS also pointed out that retail investors have favored participating in precious metals through ETFs in recent years, and the persistent premium over net asset value (NAV) of ETFs is an important signal of overheated buying pressure.

The authors said: “Gold and silver ETFs have maintained long-term premiums relative to NAV, indicating very strong buying pressure that even exceeds the capacity of primary market arbitrage mechanisms to correct.”

Typically, such persistent premiums occur when ETF demand exceeds the ability of authorized participants to create new shares and deliver physical metals to keep the market price near NAV.

When prices reversed at the end of January, this premium quickly narrowed, and silver ETFs even turned into significant discounts, reflecting a sharp reversal in capital flows and a surge in selling pressure.

Leverage ETF Rebalancing Amplifies Market Instability

BIS emphasized that leveraged silver ETFs played a role in exacerbating the market turmoil because these products inherently have a pro-cyclical amplification effect.

The report states: “To maintain a fixed daily leverage ratio, these funds must rebalance daily.”

Specifically, when prices rise, leveraged ETFs need to buy the underlying assets (usually via silver futures) to restore the target leverage; when prices fall, they must sell the underlying assets.

The authors explained: “This predictable, momentum-like operation creates feedback loops, reinforcing existing trends and potentially distorting price behavior.”

BIS noted that as retail enthusiasm continued to grow in 2025, the disruptive impact of leveraged ETFs also increased.

The report said: “The indicator measuring the impact of daily rebalancing flows of leveraged ETFs—called the rebalancing multiplier—doubled in 2025.”

Meanwhile, the share of ETFs in the overall market also increased, indicating that trading activity in leveraged ETFs is expanding its influence on precious metals markets and further strengthening price trends.

Margin Calls Trigger Deleveraging, Creating a ‘Downward Spiral’

Once the decline begins, margin pressures further intensify the sell-off.

BIS pointed out: “Rapid price declines increase the variation margin requirements for futures positions, and during this period, many exchanges also raised initial margin standards.”

This funding pressure forces highly leveraged participants with large exposures to deleverage passively, similar to past market stress events.

The authors summarized: “Forced liquidation of investor positions, combined with systematic selling by leveraged ETFs during the decline, likely further deepened downward pressure, creating a self-reinforcing cycle of falling prices, margin calls, and additional selling.”