Silver crisis, when the paper system starts to fail
Author: Pie, Deep tide TechFlow
The December precious metal market is not about gold; silver is the brightest light。
From $40 to $50, 55, 60, it passes through one historical price after another at an almost out-of-control rate, with little chance of breathing in the market。
On December 12th, real-time silver touched the historical height of US$ 64.28 per ounce and then collapsed. Since the beginning of the year, silver has increased cumulatively by almost 110 per cent, well above the 60 per cent increase in gold。
It was a seemingly “extremely reasonable” rise, but it also seemed particularly dangerous。
The crisis behind the rise
Why did the silver go up
Because it looks worth it。
This is all justified by the interpretation of mainstream institutions。
The Fed's interest rate reduction is expected to rekindle precious metals, with weak data on employment and inflation in the recent past, and a further fall in interest rates in early 2026. As a high-flexible asset, silver reacts more strongly than gold。
INDUSTRIAL DEMAND IS ALSO CONTRIBUTING. THE EXPLOSIVE GROWTH OF SOLAR ENERGY, ELECTRIC VEHICLES, DATA CENTRES AND AI INFRASTRUCTURE ALLOWS FOR THE FULL EXPRESSION OF THE DUAL PROPERTIES OF SILVER (PRECIOUS + INDUSTRIAL METALS)。
This is compounded by the continuing decline in global stocks. In Mexico and Peru, mines produced less than expected in the fourth quarter, and silver ingots on the main exchange were lower each year than expected。
I'm sorry
If we look at these reasons alone, the monetary price rise is a “consensus” and even the late revaluation of value。
But the danger of the story is:
Silver's up, looks reasonable, but not solid。
The reason is simple: silver isn't gold, it doesn't have a consensus like gold, it doesn't have a national team。
Gold is strong enough because central banks around the world are buying it. Over the past three years, global central banks have bought more than 2,300 tons of gold, hanging on national balance sheets, as an extension of sovereign credit。
Silver's different. Global central bank gold reserves exceed 36,000 tons, while official silver reserves are almost zero. Without a central bank, the lack of any systematic stabilizers is a typical “island asset” when markets experience extreme volatility。
Differences in market depth are even greater. The gold-day trade is about $150 billion, and silver is only $5 billion. The gold is compared to the Pacific Ocean, and the silver ceiling is more of a lake。
IT HAS A SMALL VOLUME, A SMALL NUMBER OF MARKETED BUSINESSES, INSUFFICIENT MOBILITY AND LIMITED PHYSICAL RESERVES. MOST CRUCIALLY, THE MAIN FORM OF TRADE IN SILVER IS NOT IN KIND, BUT IN PAPER AND SILVER, WITH FUTURES, DERIVATIVES, ETFS LEADING THE MARKET。
This is a dangerous structure。
The shallow waters can easily be turned over, and large sums of money enter the surface of the water。
And this is what happened this year:A sudden inflow of funds led to the rapid push-up of an already low market and prices being pulled off the ground。
Futures
It's not the above-mentioned seemingly reasonable rationale to derail silver pricesTrueIt's a real price warFuturesMarketI don't know。
As a rule, the spot price of silver should be slightly higher than that of futures, it is understood that holding a silver in kind requires storage costs, insurance costs and that futures are only a contract, which is naturally cheaper, and is commonly referred to as “ spot-up”。
But since the third quarter of this year, that logic has been reversed。
What does it mean that futures prices start to systematically exceed spot prices and are increasingly price differentials
This “future upwell” phenomenon, which has been dramatically raised in futures markets, can only occur in two cases:It's either the market looking up the future or someone's thereSqueezeI don't know。
Considering that the improvement of silver fundamentals is gradual, that light voltage and new energy demand will not increase exponentially in a few months and that mine production will not suddenly dry up, futures markets are more radical than the latter:There are funds to push up the price of futures。
More dangerous signals come from abnormalities in the physical delivery market。
DATA FROM THE HISTORY OF OPERATIONS OF COMEX (NEW YORK COMMODITY EXCHANGE), THE WORLD ' S LARGEST PRECIOUS METALS TRADING MARKET, SHOW THAT LESS THAN 2 PER CENT OF FUTURES CONTRACTS FOR PRECIOUS METALS ARE DELIVERED IN KIND, WITH THE REMAINING 98 PER CENT BEING DELIVERED THROUGH DOLLAR CASH SETTLEMENTS OR CONTRACT EXTENSIONS。
OVER THE PAST FEW MONTHS, HOWEVER, COMEX HAS SEEN A DRAMATIC INCREASE IN THE VOLUME OF SILVER DELIVERIES IN KIND, WELL ABOVE HISTORICAL AVERAGES。More and more investors are no longer trusting in paper and silver, and they are demanding the extraction of real silver。
SILVER ETF HAS A SIMILAR PHENOMENON. THE INFLUX OF LARGE AMOUNTS OF MONEY HAS BEEN ACCOMPANIED BY THE RECOVERY OF A NUMBER OF INVESTORS SEEKING A PHYSICAL SILVER RATHER THAN A FUND SHARE. THIS KIND OF "CRAWLING" BUYS OFF AND PUTS PRESSURE ON ETF'S SILVER SUN RESERVES。
THIS YEAR, THREE MAIN MARKETS FOR SILVER, NEW YORK COMEX, LONDON LBMA, SHANGHAI METALS EXCHANGE, HAVE EXPERIENCED A RUN-OFF。
Wind data show that the silver stock of the Shanghai Gold Exchange dropped by 58.83 tons to 715.875 tons in the week of 24 November, a new low since 3 July 2016. CMOEX silver inventory dropped sharply from 1.65 million tons at the beginning of October to 1.41 million tons, a 14 per cent decrease。
The reason is not difficult to understand: in the interest-rate cycle of the dollar, people are reluctant to trade in dollars, and another hidden concern is that the exchange may not be able to produce so much silver for the delivery。
Modern precious metal fields are a highly financial system, with most of the “white silver” being only book numbers, and real silver suns being collateralized, leased, derived around the globe. An ounce of real silver, possibly a dozen different rights at the same time。
Andy Schectman, a senior trader, for example, in London, LBMA has only 140 million ounces to float, but trades up to 600 million ounces a day, and there are over 2 billion ounces of paper on this 140 million ounce。
This “score reserve system” works well at normal times, but the system as a whole has a liquidity crisis once everyone wants it in kind。
When the shadow of the crisis emerges, it seems that there will always be a strange phenomenon in financial markets, commonly referred to as the “wielding line”。
ON 28 NOVEMBER, THE CME HAD THE LONGEST RECORD SINCE THE “DATA CENTRE COOLING” MACHINE HAD BEEN SHUT DOWN FOR NEARLY 11 HOURS, MAKING IT IMPOSSIBLE FOR COMEX GOLD AND SILVER FUTURES TO BE PROPERLY UPDATED。
Notablely, the crash took place at a critical moment when silver broke its high point in history, when real money broke $56 and silver futures broke $57。
Market speculation suggests that the crash is intended to protect commodities exposed to extreme risk and subject to large losses。
Later, CyrusOne, a data centre operator, stated that the major interruption had resulted from human error and had given rise to various “conspiracies”。
In short, this future-driven situation is destined for the volatility of the silver marketSilver has in fact shifted from a traditional risk avoidance asset to a high-risk target。
Who's sitting down
There's a name that can't be bypassed in this impulsive play: Morgan Chase。
For no other reason, he is an internationally recognized silver dealer。
For at least eight years from 2008 to 2016, Chase Morgan manipulated gold and silver market prices through traders。
The technique is simple: large amounts of silver contracts are bought or sold on futures markets, supply and demand are created, other traders are lured and orders are cancelled at the last second to benefit from price fluctuations。
This modus operandi, known as cheating, eventually cost Morgan Chase $920 million in a single CFTC fine record in 2020。
But the real textbook-level market is more than that。
On the one hand, Chase Morgan has been able to reduce the price of silver through a large number of sales and fraudulent transactions in the futures market, while, on the other hand, he has acquired substantial quantities of real metals at low prices of his own。
STARTING IN 2011, WHEN THE SILVER PRICE WAS CLOSE TO $50, MORGAN CHASE STARTED HOARDING IT IN ITS COMEX WAREHOUSE, ADDING IT TO OTHER LARGE INSTITUTIONS WHEN THEY CUT IT, ACCOUNTING FOR UP TO 50 PER CENT OF COMEX'S TOTAL SILVER INVENTORY。
This strategy exploits the structural weaknesses of the silver marketPaper and silver prices dominate the price of real money, while Morgan Chase can influence both paper and silver prices and is one of the largest holders of real money。
So what's Morgan Chase's role in this round of silver
On the surface, Morgan Chase seems to have “rehabilitated”. Following the 2020 reconciliation agreement, systematic compliance reforms were undertaken, including the hiring of hundreds of new compliance officers。
There is also no evidence to suggest that Chase Morgan is involved in the drive, but in the silver market, Chase Morgan still has significant influence。
ACCORDING TO THE LATEST DATA FROM THE CME OF 11 DECEMBER, THE TOTAL AMOUNT OF SILVER UNDER THE COMEX SYSTEM IS APPROXIMATELY 196 MILLION OUNCES (SELF-EMPLOYED + BROKERS), ACCOUNTING FOR ALMOST 43 PER CENT OF THE TOTAL STOCK OF THE EXCHANGE。
IN ADDITION, MORGAN CHASE HAS A SPECIAL IDENTITY, THE TRUSTEE OF THE SILVER ETF (SLV) UNTIL NOVEMBER 2025517 million ounces of silver worth $32.1 billion。
More crucially, in the part of Eligible silver (i.e. eligible for delivery but not yet registered as deliverable), Morgan Chase controls more than half the scale。
In any round of silver and silver rushing, the real game of the market is two things:First, who can take out silver objects; second, whether and when the silver is allowed into the delivery pool。
Unlike what was once a silver hole, today's Morgan Chase sits at the White Silver Gate。
While the current deliverable of registered silver accounts for only about 30 per cent of total inventory, the stability of the silver futures market depends in fact on the behaviour choices of very few nodes, when Eligible ' s head is highly concentrated in a few institutions。
The paper system is failing
If only one sentence is used to describe the current silver market, it is:
The process continues, but the rules have changed。
Markets have completed an irreversible transformation, and trust in the silver “paper system” is breaking down。
Silver is not an example, and the same changes have occurred in the gold market。
The New York Futures Exchange's gold stock continues to decline, with registered gold repeatedly reaching low levels, and the exchange has had to broker the gold bar from the “Eligible” that was not intended for delivery。
Globally, funds are moving quietly。
OVER THE PAST DECADE OR SO, MAINSTREAM ASSET ALLOCATION HAS BEEN HIGHLY FINANCIALIZED, WITH ETFS, DERIVATIVES, STRUCTURED PRODUCTS, LEVERS, EVERYTHING BEING “SECURITIZED”。
More and more funds are now being withdrawn from financial assets in search of physical assets that are not dependent on financial intermediaries or credit endorsements, typically gold and silver。
Central banks maintain a sustained, large-scale increase in gold, almost without exception choosing in kind. Russia bans gold exports, and even Western countries, such as Germany and the Netherlands, demand the return of gold reserves stored abroad。
Liquidity, giving way to certainty。
When the supply of gold does not meet the huge in-kind demand, the money begins to look for alternatives, and silver is naturally the preferred option。
The essence of this physicalization campaign is the weak dollar, the renewed competition for monetary pricing rights in the context of globalization。
According to Bloomberg in October, global gold is shifting from the West to the East。
DATA FROM THE UNITED STATES CME AND THE LONDON GOLD AND SILVER MARKETS ASSOCIATION (LBMA) SHOW THAT, SINCE THE END OF APRIL, MORE THAN 527 TONS OF GOLD HAVE BEEN FLOWING OUT OF THE TREASURY OF TWO OF THE LARGEST WESTERN MARKETS, NEW YORK AND LONDON, IN THE UNITED STATES, WHILE IMPORTS OF GOLD BY LARGE CONSUMERS IN ASIA, SUCH AS CHINA, HAVE INCREASED, WITH CHINA’S GOLD IMPORTS IN AUGUST REACHING A FOUR-YEAR HIGH。
In response to market changes, Morgan Chase moved its precious metal trading team from the United States to Singapore at the end of November 2025。
Behind the huge increase in gold and silver is a return to the concept of the gold standard. It may not be realistic in the short term, but it is certain that those who have more physical possession will have greater pricing power。
When the music stops, only those with real silver and gold can enter the table。
