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On budget day, while the nation's eyes were fixed on Parliament, a different kind of upheaval was unfolding in the commodity market. For the second consecutive day, gold and silver prices witnessed a sharp decline, surprising both investors and ordinary buyers. Gold and silver, which had been soaring just a few days ago, plummeted after the budget presentation on February 1st. This turmoil in the futures market has brought prices significantly below record levels, completely changing the market dynamics.

The market picture changed in just two days.
This drop in gold and silver prices is not insignificant. Looking at the data from the Multi-Commodity Exchange (MCX), the situation appears quite alarming. Silver, which had reached a level of Rs 4.01 lakh per kg on January 29th, is now trading at Rs 2.66 lakh. This means that in just a few days, the price of silver has fallen by a massive Rs 1.36 lakh.

The situation is similar for gold. Gold, which had reached Rs 1.69 lakh on January 29th, is now trading around Rs 1.38 lakh in the futures market. The price of 10 grams of gold has fallen to Rs 1.46 lakh today. ​​Analyzing the data, the price of gold has decreased by more than Rs 30,000 in just two days. Although the bullion market is closed today, on January 30th, silver has become cheaper by Rs 40,000 and gold by approximately Rs 9,500. According to the India Bullion and Jewellers Association (IBJA), the price of 24-carat gold in the bullion market had fallen to Rs 1.65 lakh and silver to Rs 3.39 lakh per kg.

Why such a massive drop?
Two main reasons are believed to be behind this market tsunami. The first reason is massive profit booking. In the last few days, gold and silver prices have reached their all-time highs. In this situation, investors who had bought at lower levels started selling their holdings to book profits. The second reason is the decline in physical demand. When prices soared, demand from ordinary consumers and industries weakened, putting pressure on prices.

How did the margin game spoil the calculations?
The biggest and most technical reason for this decline is the increase in 'margin money'. According to SEBI-registered commodity expert Anuj Gupta, the Chicago Mercantile Exchange (CME) has now increased margins on gold and silver after copper. The margin on gold has been increased from 6% to 8%, and on silver from 11% to 15%.

Let's understand this... In the commodity market, you don't have to pay the full amount for trading; instead, a portion is deposited as 'margin' or security. When the exchange increases this margin, traders have to invest more money from their own pockets to maintain their old positions. Many traders don't have extra cash readily available, so they are forced to sell their gold and silver. When many people sell simultaneously in the market, prices collapse like a house of cards. This pressure on prices due to increased margins is likely to continue.

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