silver

A month ago (red arrow in 5-year chart below), I noticed that the price of silver was starting into a parabolic rise pattern. That is typical of speculative bubbles. Those bubbles usually end in a bust. Also, the rise in silver price seemed to be mainly driven by retail speculators, fueled by half-baked narratives rather than physical reality.

Five-year chart of silver prices $/oz, per Trading View

So I wrote a blog post here last month warning of a bubble, and sold about a quarter of my silver holdings. (I also initiated some protective options but that’s another story for another time.) I then felt pretty foolish for the next four weeks, as silver prices went up and up and up, a good 40% percent over the point I initially thought it was a bubble. Maybe I was wrong, or maybe the market can stay irrational longer than you can stay solvent, per J. M. Keynes.

When the crash finally came, it was truly epic. Below is a one-month chart of silver price. The two red lines show silver price at the close of regular trading on Thursday, January 29 (115.5 $/oz), and at the close of trading on Friday, January 30 (84.6 $/oz):

This is a drop of nearly 30% in one day, which is a mind-boggling move for a major commodity. Gold got dragged down, too:

These aren’t normal moves. Over roughly the past 25+ years (through 2025), gold’s price has changed by about 0.8% per day on average (in absolute percentage terms). Silver, being more volatile, has averaged around 1.4–1.5% per day. If you’re scoring at home, that’s about a 13 Sigma move for Gold and 22 Sigma move for Silver! You’re witnessing something that shouldn’t happen more than once in several lifetimes…statistically speaking. Yet here we are.

After the fact, a number of causes for the crash were proposed:

The nomination of Kevin Warsh as the next Federal Reserve Chair. Warsh is perceived as a hawkish policymaker, leading investors to expect tighter monetary policy, higher interest rates, and a stronger U.S. dollar—all of which reduce the appeal of non-yielding assets like silver.

Aggressive profit-taking after silver surged over 40% year-to-date and hit record highs near $121 per ounce.
Leveraged positions in silver futures were rapidly unwound as prices broke key technical levels, triggering stop-loss orders and margin calls.
CME margin hikes (up to 36% for silver futures) increased trading costs, forcing traders to cut exposure and accelerating the sell-off.
Extreme speculation among Chinese investors, leading the Chinese government to clamp down on speculative trading. (And presumably Chinese solar panel manufacturers have been complaining to the government about high costs for silver components).

What happens next?

Silver kept falling to a low of 72.9 $/oz in the wee hours of February 2, a drop of 40% percent from the high of 120.8 on Jan 26. However, it looks to my amateur eyes like the silver bubble is not really tamed yet. For all the drama of a 22-sigma crash one day crash, about all that did was erase one months’ worth of speculative gains. The charts above are showing that silver is clawing its way right back up again. It is very roughly on the trend line of the past six months, if one excludes the monster surge in the month of January.

There is a saying among commodities traders, that the cure for high prices is high prices. This means that over time, there will be adjustments that will bring down prices. In the case of silver, that will include figuring out ways to use less of it, including recycling and substitution of other metals like copper and aluminum. However, my guess is that the silver bulls feel vindicated by the price action so far, and will keep on buying at least for now.

Disclaimer: As usual, nothing here should be regarded as advice to buy or sell any security.

This is a five-year chart of the silver ETF SLV:

By most standards, this pattern looks like we entered a bubble a few months ago: speculative froth, unjustified by fundamentals. Economic history is replete with such madness of crowds. It is accepted wisdom on The Street that these parabolic price rises seldom end well. I lost a few pesos buying into the great gold bubble of 2011. All sorts of justifications were given at the time by the gold bugs on why gold prices ought to just keep on rising, or at least reach a “permanently high plateau” (in the famous words of Irving Fisher, just before the 1929 crash). Well, gold then proceeded to go down and down and down, losing some 60% of its value, until the price in 2015 matched the price in 2009, before the great bubble of 2010-2011.

Today, similar justifications are proffered as to why silver is going to the moon. There is a long-standing deficit in supply vs. demand; it takes ten years for a new silver mine to get productive; China has started restricting exports; Samsung announced a breakthrough lithium battery that can charge in six minutes, but requires a kilogram of silver; AI infrastructure is eating all the silver. These narratives seem to feed on each other. As the silver price moved higher in the past month, out came yet wilder stories that ricochet around the internet at high speeds: the commodities exchanges have run out of physical silver to back the paper trades; and the persistent claim that “they” (shadowy paper traders, central banks, commodity exchanges, the deep state, etc.) are “suppressing” silver and gold prices by means of shorting (which makes no sense). Given this popular shorting myth, it was with great glee that the blogosphere breathlessly spread the bogus story that some “systematically important bank” was in the process of being liquidated because it got squeezed on its silver short position.

The extreme price action at the very end of December (discussed below) was like rocket fuel for these rumors. Having bought a little SLV myself so as to not feel like a fool if the silver rally did have legs, I spent a number of hours as 2025 turned to 2026 trying to sort all this out. Here are some findings.

First, as to the medium term supply/demand issues, I refer the reader to a recent article on Seeking Alpha by James Foord. He shows a chart showing that silver demand is increasing, but slowly:

He also notes that as silver price increases, there is motivation for more recycling and substitution, to compensate. He concludes that the current price surge is not driven by fundamentals, but by paper speculation.

The last ten days or so have been a wild ride, which merits some explanation. Here is the last 30 days of SLV price action:

Silver prices were rising rapidly throughout the month, but then really popped during Christmas week, reaching a crescendo on Friday, Dec 26 (blue arrow), amid rumors of physical shortages on the Shanghai exchange. To cool the speculative mania, the COMEX abruptly raised the margin requirements on silver contracts by some 30%, from $25,000 to $32,500, effective Monday, Dec 29. I think the exchange was trying to ensure that speculators could make good on their commitment, and the raise in margin requirement would help do that. (Note, the exchange is liable if some market participant fails to deliver as promised and goes BK).

Anyway, this move forced long speculators to either post more collatoral or to liquidate their positions, on short notice. Blam, the price of silver dropped a near record amount in one day (red arrow). For me, a little minnow caught in the middle of all this shark tank action, the key part is what came after this forced decline. Was the bubble punctured for good? Should I hold or fold?

As shown above, the price has traded in a range for the past week, with violent daily moves. Zooming out to the a one-year view, it looks like the upward momentum has been halted for the moment, but it is unclear to me whether the bubble will deflate or continue for a while:

I sold about a quarter of my (small) SLV holding, hoping to buy back cheaper sometime in the coming year. Time will tell if that was a good move.

Usual disclaimer: Nothing here is advice to buy or sell any security.

P.S. Tuesday, Jan 6, 2025, after market close: I wrote this last night (Monday, Jan. 5) when silver was still rangebound. SLV was about $69, and spot silver about $76/oz. But silver ripped higher overnight, and kept going during the day, up nearly 7% at the close to new all time high. It looks like the bubble is alive and well, for now. Congrats to silver longs…