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…