The price of silver fell 12% in the last two trading days of last week. Gold lost 2.6%.

While gold has held up relatively well, silver fell in tandem with the broader stock market after President Trump announced reciprocal tariffs against nations that impose a tax on goods from the United States.

Gold bullion was exempted; gold, silver, platinum and palladium coins, rounds and bars will not be subject to the tariff. This news provided part of the impetus for a sharp sell-off in the futures markets.

Long-term speculators who made leveraged bets that tariffs would drive up metals prices discovered they had gambled and lost.

The big sell-off highlights a frustrating reality about bullion investing. In the short term, metals prices are largely affected by organizations with which bullion investors have virtually nothing in common.

Short-term price movements are driven by money flows in the leveraged futures markets.

In the futures market:

*Investors tend to have a short-term mentality. The longest contract with the highest volume expires in a few months.

*Futures contracts have a leverage of more than 10 to 1. This usually results in weak hands. Investors who do not have the resources or the guts to hold out when a bet goes wrong will sell.

*The motivations are completely different. No one buys a futures contract because they care about something to pass on to their grandchildren. In fact, much of the trading is not even done by humans; it is often done by algorithms or machines.

*Speculators in the futures market play a zero-sum game. One side bets on higher prices and the other side bets that prices will go down.

*The playing field is not level. There are smaller fish, with shallow pockets and no tricks or tools at their disposal. They are often paired with whales: golden shoals with deep pockets, lots of extra tools and, unfortunately, a history of dirty tricks.

*The futures market has rules that are subject to change without notice. These changes often occur during times of intense trading activity. For example, the COMEX increased margin requirements amid last week's wave of selling. This move left even more investors with long positions in an inverted position, increasing pressure to sell.

*The supply of contracts is virtually unlimited. The Hunt brothers could be the last to be turned down when trying to buy a silver contract, and that was in 1980. Since then, the bullion banks have been able to absorb any demand with a contract for anyone willing to buy it.

In the bullion retail market:

*Investors tend to buy with the intention of holding their investments for the long term. Almost all market participants are individual investors motivated by the instinct to preserve their wealth and reduce counterparty risk.

*No leverage.

*There is no counterparty when an investor buys coins, coins and bars, especially a bullion bank with a criminal record.

*There is a real supply limit. Bullion markets are limited to the metal available.

For those frustrated by the short-term price action of metals, here is some further reading. Futures markets were created, in part, to discourage the physical possession of gold and silver.

Suffice it to say that, if gold and silver price discovery were done in the physical markets, rather than in the futures markets, the price action would be different.

Last week was a clear example. Very few physical metal holders saw the news about the tariffs and decided it was time to sell.

Rather, bullion investors saw the price drop as an opportunity to buy.

Friday was the busiest shopping day in a couple of years. And the number of vendors decreased considerably.

Clint Siegner, Money Metals