By Richard Irving,(The Times)

The price of silver collapsed into freefall yesterday afternoon, racking up its biggest one-day loss in almost two decades and triggering a massive sell-off in other precious metals.

Dealers blamed the near-14 per cent plunge in the silver price on a strong bounce in the dollar, prompting some of the hot money that has been chasing the market to a 23-year high to cash in profits. The sell-off gathered momentum as speculators who had been gambling on the silver price breaking through $15 an ounce scrambled to cut their losses, dealers said.

By mid-afternoon in New York, silver had crashed by more than $2 to $12.45 after earlier changing hands at $14.69 — the highest level since January 1983.

The dramatic plunge quickly gripped other markets, with gold tumbling more than 4 per cent to $610.50 an ounce, its largest one-day drop in more than six years. The price of platinum, which earlier in the day hit a record high of $1,145 an ounce, fell more than $20 while palladium, which is used in products ranging from surgical instruments to aircraft spark plugs, collapsed more than 7 per cent to just $347 an ounce.

Jitters also unnerved other commodities, including oil, where benchmark US crude gave up more than $1.5 a barrel after earlier hitting a new high of $72.49, and copper, where prices fell by more than $200 a tonne.

Dealers had been cautioning that metals markets might be vulnerable to a correction following recent spikes in many commodities, but the violence of the downturn still took many by surprise.

One dealer, who declined to be named, told The Times last night that sentiment quickly turned sour when an expected rush of speculative buying failed to materialise as silver and gold touched new highs. "Speculators have been enjoying the party, but they've kept pretty close to the door," the dealer said. "When there was no real follow-through to the buying, a few key players began to cash in their profits and the next thing we knew we were facing a rout. It all started in the silver market, but it was commodity-wide by the end of the day."

Meanwhile Chip Hanlon, a trader at Delta Global Advisers, a commodities trading firm in New York, gave warning that the sell-off could gather further momentum. "If there isn't a blow-off in gold and silver in progress, I'll eat my hat," he said. He added that the last time the silver market had been this volatile, it had presaged a sell-off across the whole spectrum of precious metals.

London analysts were more sanguine. David Buik of Cantor Index described the reversal as long overdue. "Today's drop in precious metals is no more than a reality check. Despite demand from China and India, prices cannot keep going up in a straight line. Call for the Rennies."

Rising tensions in the Middle East, worries over inflation and concerns over the outlook for the dollar have pushed gold, silver and copper prices into uncharted territory. Prices have been further buoyed by institutional investors in search of high returns.