Silver’s Wild Ride: How Index Rebalancing Jolted the Market

Silver’s Heart-Stopper

By mid-morning in New York, the silver pit sounded like a racetrack. Traders who had arrived expecting the usual lull were greeted by a 6 % spike, a 4 % plunge, and then another 3 % rebound—all before lunch. The culprit, according to every floor broker I grabbed by the sleeve, was a single line item buried in the quarterly rebalancing of two major commodity indexes.

The Rebalancing Domino

When the Dow Jones Commodity Index and the Bloomberg Commodity Index released their re-weighting spreadsheets after Monday’s close, silver’s target allocation jumped from 4.2 % to 5.1 %. Passive funds that mirror those benchmarks had fewer than 48 hours to buy roughly $1.8 billion worth of the metal. By Tuesday’s opening bell, algorithmic programs began hoovering up futures contracts, pushing spot silver to a three-month high of $26.90.

“We walked in and the board was already green—nothing fundamental, just forced buying,” said Melanie Huang, a senior metals trader at RBC Capital Markets. “Then the leveraged guys smelled blood and the volume exploded.”

The twist came when leveraged ETFs, which must rebalance daily, began selling their overbought positions to maintain mandated exposure. That triggered a 4 % nosedive in 22 minutes, tripping two volatility halts on the COMEX.

What Happens Next

History says the aftershocks can linger. During the 2020 rebalancing, silver whipsawed for almost two weeks, ending 8 % higher but leaving a trail of liquidated retail accounts. Analysts at Bank of America warn the metal could test $27.80 if the dollar softens, while a break below $25.40 risks cascading stop-loss orders.

• Passive index funds still need to purchase an estimated 1,300 additional tonnes before Friday’s settlement.
• Net speculative length on COMEX has jumped 38 %, the highest since April.
• Implied volatility surged to 31 %, making short-dated options painfully expensive.

Main Street Feels It Too

Local coin dealers from Phoenix to Philadelphia report phones ringing off the hook. “People think they missed the move,” said Tony Salazar, owner of Southwest Bullion. “They don’t realize the premium on an American Silver Eagle just widened another 90 cents.”

Bottom Line

Until the rebalancing dust settles, silver is less a story about inflation hedges or solar-panel demand than about mechanical cash flows. Traders call it “forced love;” investors call it opportunity—provided they can stomach the swings.