HYDERABAD: The usually bustling Hyderabad bullion market slipped into an unusual silence last week after gold and silver prices surged sharply and then corrected violently, forcing nearly 80% of traders to temporarily shut shop. What had been a roaring market driven by relentless buying and daily record highs abruptly turned cautious, as steep margin hikes and extreme volatility rattled traders and drained liquidity from the system.
However, by Tuesday, a recovery in silver prices and their relative cheapness compared to recent levels pushed demand for the physical metal to nearly double the usual level, with retail buyers jumping in.
Trading activity began thinning from last Tuesday (January 27) as silver prices touched Rs 4 lakh. Nervousness spread quickly across bullion hubs, and by Thursday evening (January 29), only about 15% of traders were still operating, with most choosing to close counters early to avoid further exposure. Then the crash began on Friday (January 30).
“Once prices started slipping, nobody wanted to take fresh risks. Every trader was focused on protecting capital rather than chasing volumes,” said Prem Kumar, a bullion merchant from Hyderabad. “Friday witnessed an almost complete shutdown amid heavy settlements, while Saturday, usually one of the busiest days for physical trade, also remained largely inactive,” he added.
The turning point came late Thursday night when silver prices on India’s MCX commodities exchange crashed from around Rs 4.2 lakh per kg to nearly Rs 3.55 lakh per kg within just 90 seconds. The sudden plunge triggered panic selling across futures and spot markets, setting off margin calls and forcing traders to square off positions at steep losses. “It was not a normal correction — it was a collapse. In 90 seconds, weeks of gains disappeared, and traders did not even get the chance to place exit orders properly,” Kumar added.
Silver bore the brunt of the turbulence. After emerging as the star performer during the rally, prices corrected sharply, catching heavily leveraged traders off guard. Merchants said spot silver briefly fell to around `2,45,000 per kg at the lowest point before rebounding.
After the crash, demand for physical silver nearly doubled as retail buyers rushed in, driven by fear of missing out. “Retail buyers look at silver differently. When prices fall sharply, they see it as an opportunity to accumulate physical metal, not as a trading risk,” Rajesh Agarwal, another merchant, said. By Tuesday around 6 pm, spot silver had recovered to around `2,86,000 per kg and has since been consolidating. Around the same time, MCX February Futures were around `2,68,000 per kg.
This unusual phenomenon, where spot prices trade above futures, is known as backwardation. Traders said this reflected tight availability of physical metal and strong immediate demand, even as futures markets remained under pressure due to forced unwinding. “Normally futures carry a premium over spot, but this time physical silver was commanding higher prices. That tells you the stress was in the physical supply chain, not just on trading screens,” Rajesh added.
Bullion merchants attributed the selloff largely to a sharp hike in margin requirements by the US-based COMEX exchange, which forced leveraged traders globally to exit positions. Indian exchanges followed with steep margin increases. Silver margins, which were around `30,000 per kg about 10 days ago in India, have now surged to nearly Rs 1.4 lakh per kg—close to 65% of the contract value. With margins raised so sharply, many traders had no choice but to exit their positions at a heavy loss.
Losses were concentrated among bullion dealers and short-term traders, particularly those caught between spot and futures positions when liquidity dried up. Long-term investors, however, were largely insulated and in many cases managed to book profits or hold through the volatility. However, one of the bullion merchants said thousands of traders have lost huge money in this game of silver. “Investors who bought early and stayed disciplined are still comfortable. The real pain was for dealers who had inventory and hedges that stopped working once margins exploded,” a merchant said, adding that only those forced to exit near the bottom suffered severe damage.
Under normal conditions, bullion merchants hedge volatility through futures and options, inventory hedging, back-to-back trading and spot–futures arbitrage. However, the abrupt spike in margins disrupted these mechanisms, leaving even hedged positions exposed. “Hedging assumes stable margin requirements and liquidity. When both vanish overnight, even well-hedged books can turn risky,” Rajesh added.
Normal trading gradually resumed from Sunday (February 8), with bullion shops reopening and heightened buying interest returning at lower price levels. Merchants said the correction has cooled the earlier fear-driven buying frenzy and restored a degree of balance. “Earlier, people were buying simply because prices were going up. Now buyers are more selective and price-conscious,” a dealer observed.
Despite the return of activity, traders warned that volatility is likely to persist. Prices are expected to consolidate within a narrow range over the next 10 to 15 days, with short-term trading remaining risky. “This correction was painful, but it was necessary. The market needed to cool down. For long-term investors, especially in silver, these levels are far healthier than the frenzy we saw earlier,” Prem Kumar added.