Silver's extraordinary volatility continues to dominate precious metals markets, with the metal reaching a record above $84 per ounce before crashing to near $70 in thin post-holiday trading. This dramatic price action, representing one of silver's largest reversals ever, has prompted market experts including Zerodha CEO Nithin Kamath to issue stark warnings about position sizing and risk management.

Record Volatility and Market Warnings

MCX silver March futures witnessed unprecedented volatility, crashing over 10% or ₹21,000 per kg from an all-time high of ₹2,54,174 to ₹2,33,120 within a single trading session. The dramatic reversal caught bullish traders off guard after silver's historic breach above the ₹2.5 lakh mark, exposing the fragility of a rally that has delivered over 150% gains this year.

Nithin Kamath used the dramatic silver volatility as a teachable moment for traders. Sharing a chart of MCX silver futures, he warned: "This type of move is what every trader dreams of capturing, but it can also be a nightmare to manage without a good understanding of how to size your positions. Especially when something moves ~10% intraday." Kamath noted that commodity trading volumes appear to be rising sharply, amplifying both opportunities and risks.

Key Market Drivers for 2026 Outlook

Chinese Buying Surge

Surging investor interest in China has been a key driver of silver prices in recent days. Speculators piled into the precious metal, with elevated buying in the Shanghai Gold Exchange's silver contract pushing premiums to record highs. The blistering rally provoked the country's only pure-play silver fund to turn away new customers after repeated risk warnings went unheeded, with the fund's manager announcing the unusual step after multiple actions failed to quell social media-fueled interest.

ETF Inflows and Supply Dynamics

Holdings in physical-backed silver exchange-traded funds have surged this year, rising by more than 150 million ounces. While total metal held by funds remains below the 2021 Reddit-driven peak, the inflows have been instrumental in eroding available supplies in an already tight market. Holdings in the funds have risen every month but one this year, according to market data.

Technical Indicators and Risk Factors

Silver prices jumped more than 25% in December alone, on track for the biggest monthly increase since 2020. The speed of gains meant technical indicators were signaling prices had run too far, too quickly. The metal's relative strength index has stayed above 70 for most of the past few weeks, with readings higher than 70 typically indicating excessive buying in short periods.

Some exchanges are moving to rein in risk amid heightened volatility. The margins for some Comex silver futures contracts have been raised, adding headwinds since traders need to put up more cash to keep positions open. This forces some speculators to shrink or close trades instead.

Options Activity and Market Structure

One indication of speculative fervor has been the level of buying for call options on both silver futures and related ETFs. For iShares Silver Trust (SLV), the largest silver ETF, total call volume hit the highest since 2021. The cost of buying calls on silver futures relative to puts also jumped to historical highs in December.

Much of the world's available silver remains in New York warehouses due to tariff-related trades, while markets await the outcome of a US Section 232 probe into critical minerals. The surge of metal into the US pushed the London market into a squeeze in October, with borrowing costs remaining well above normal levels, setting the stage for increased volatility and frequent price spikes.

Peter McGuire, CEO of trading.com, has issued a strong warning against shorting silver despite the precious metal's recent retreat from record highs, comparing the white metal's momentum to "a V12 Lamborghini on an autobahn." Speaking to CNBC-TV18 on Monday, McGuire emphasized that current market conditions suggest more upside potential ahead.

Record-Breaking Performance Amid Volatility

Silver reached unprecedented heights on Monday, with spot prices crossing $82 per ounce in early trading. At its peak, the precious metal briefly commanded higher per-unit value than shares of Nvidia, the world's most valuable listed company, making it the second-most valued asset after gold.

However, the rally has shown signs of volatility, with prices declining nearly 10% from the record levels and settling back below the $80.00 per ounce mark by the end of Monday's session.

Exceptional Year-to-Date Performance

Silver's performance has been nothing short of remarkable. Having begun the year at sub-$30 levels, the white metal has surged over 170% with three trading sessions remaining in the year. This trajectory positions silver for its best calendar year performance since 1979, when it gained over 200%.

"If you would have told me that this time last year, I would have laughed, and I would have said I don't think it can get there, but now it has," McGuire acknowledged. "We have got a couple of days left of trade, so we might even punch out 180%."

Multiple Drivers Supporting Rally

McGuire identified several key factors driving silver prices higher, creating a confluence of supportive conditions for the precious metal:

• Supply shortfall pressures
• Strong industrial demand
• Need to cover paper short positions
• Significant speculative inflows

These combined forces have created what McGuire describes as "very dynamic trading" conditions, with momentum remaining strongly tilted toward the upside.

Bullish Long-Term Outlook

Despite acknowledging the current "overdrive" conditions, McGuire maintains an optimistic long-term perspective for precious metals. His projections extend well into 2026, with specific price targets for both silver and gold.

"It's too early to talk about being short at the momentum and the upside is very strong, and let's just see where it rolls," McGuire concluded, reinforcing his stance against premature short positions in the current market environment.