Silver tumbled dramatically overnight after initially smashing through $80 an ounce for the first time (topping $84 at its highs), halting a near vertical recent rise driven by Chinese speculative demand.

Surging Chinese investment demand has pulled the metal higher, with premiums for spot silver in Shanghai rising above $8 an ounce over London prices, the biggest spread on record…

As Bloomberg reports, the blistering rally has provoked extreme measures in China’s investment landscape, with the country’s only pure-play silver fund turning away new customers after its repeated risk warnings went unheeded.

The fund’s manager announced the unusual step Friday after multiple actions – from tighter trading rules to cautionary advice about “unsustainable” gains – failed to quell an eruption of interest fueled by social media.

However, Goldman Sachs Asia trading desk noted ‘no smoking gun’ for the reversal:

While there are only 3 days ahead of New Year, China commodities remain volatile. Silver surged 9.25% by lunch break and people are asking what factors investors are pricing for silver.

However, risk off in the afternoon without smoking gun. Precious had significant correction.

Palladium and platinum both ended at limit down and silver’s early gain was almost wiped out and ended +0.51% only while gold lost 0.91%.

Open interest across the 4 precious metal contract all declined.

Although they do point out that GFEX tightened measure to curb excessive trading of palladium and platinum a few days ago and investors were leaving the market and prices corrected notably today.

Bloomberg macro strategist Adam Linton agrees with Goldman on ‘no smoking gun’, but…

“While there was no clear driver for the silver pullback, the low levels of liquidity and silver’s parabolic rise means that it is vulnerable to a snap back.

Macro drivers and liquidity remain light, meaning that such erratic price action in the metals space could be a feature of trade for what is left of 2025.”

The Chinese measures are effectively a rollover of previous policies and were first announced by the Ministry of Commerce on Oct. 30.

Although the country ranks among the top three global producers of silver – largely as a byproduct of industrial metals – it’s also the world’s largest consumer and therefore not a major exporter.

“The speculative atmosphere is very strong,” said Wang Yanqing, an analyst with China Futures Ltd.

“There’s hype around tight spot supply, and it’s a bit extreme now.”

Additionally, as we warned previously, some exchanges are moving to rein in risk.

The margins for some Comex silver futures contracts will be raised from Monday, according to a statement from CME – a move that Wang said would help reduce speculation.

Arguably, silver’s rapid ascent needed a breather – perhaps this is it.

PFR ExtremeHurst, a model for spotting herd behavior that generates a self-reinforcing frenzy, has triggered a top exhaustion signal on silver, echoing a similar alert on gold that preceded its 11% correction in October.

Some attributed the sudden downward shift to comments during the weekend from Elon Musk, who highlighted the growing investor frenzy around precious metals, replying to a tweet on Chinese export restrictions by saying on X:

“This is not good. Silver is needed in many industrial processes.”

For now, the decline is stable and hardly indicative of a herd rushing for the exits. But a thin liquidity holiday-shortened week could exacerbate any moves.