Silver skyrocketing 110% Insider: Paper system collapse, COMEX inventory plummeting 14%

Silver prices soared from $40 at the beginning of the year to a historic high of $64.28 on December 12, with a cumulative increase of 110%, far surpassing gold’s 60% performance. However, behind this seemingly rational rally lies deep-seated crises such as futures short squeezes, a surge in physical delivery, and a breakdown of trust in the paper system. COMEX silver inventories plummeted from 16,500 tons in early October to 14,100 tons, a 14% decline.

The Triple Drivers of the 110% Surge and the Island Dilemma

Mainstream explanations for the silver rally seem comprehensive but hide fatal blind spots. The Fed’s easing expectations reignited precious metals markets, recent soft employment and inflation data have led markets to bet on further rate cuts by early 2026. As a highly elastic asset, silver reacts more intensely than gold. Industrial demand is also fueling the rally—explosive growth in solar, electric vehicles, data centers, and AI infrastructure fully demonstrates silver’s dual nature (precious metal + industrial metal). Global stockpiles continue to decline, exacerbated by underwhelming Q4 production from mines in Mexico and Peru.

However, silver’s danger lies in its “island asset” nature. Gold remains resilient because central banks worldwide have bought over 2,300 tons in the past three years, extending sovereign credit on their balance sheets. Silver differs: global official gold reserves exceed 36,000 tons, while official silver reserves are almost zero. Without central bank support, silver lacks systemic stabilizers during extreme market volatility.

Deadly Difference Between Silver and Gold

Central Bank Reserves: 36,000 tons of gold vs. almost zero silver, lacking national-level stabilizers

Daily Trading Volume: $150 billion in gold vs. only $5 billion in silver, 30 times less liquidity

Trading Forms: Silver market dominated by futures, derivatives, and ETFs, with physical trading accounting for less than 2%

The stark disparity in market depth makes silver highly susceptible to manipulation. Comparing gold to the Pacific Ocean, silver is more like Poyang Lake—smaller, fewer market makers, less liquidity. When large capital flows in suddenly, it can disrupt the entire surface. This year, such a scenario has occurred: a sudden influx of funds rapidly pushed up an already shallow market, pulling prices away from fundamentals.

Abnormal Futures Contango Signals a Short Squeeze Is Underway

The real price war is in the futures market. Under normal circumstances, spot silver prices should be slightly higher than futures due to storage and insurance costs, with futures being just contracts. This “spot premium” is normal. But since Q3 this year, the logic has inverted. Futures prices have systematically been higher than spot prices, with the spread widening.

This “futures contango” anomaly usually appears in only two situations: either the market is extremely bullish on the future, or funds are forcing a short squeeze. Given that silver’s fundamentals are improving gradually—solar and new energy demand won’t spike exponentially in a few months, and mine output won’t suddenly dry up—the aggressive futures market behavior resembles the latter: funds are systematically pushing futures prices higher, forcing shorts to either cover or deliver physical silver.

A more dangerous signal comes from anomalies in the physical delivery market. The world’s largest precious metals exchange, COMEX, shows that physical delivery accounts for less than 2% of futures contracts, with the remaining 98% settled in cash or rolled over. Yet in recent months, COMEX’s physical silver delivery volume has surged well above historical averages. Increasingly, investors no longer trust “paper silver” and are demanding actual silver bars.

Similarly, silver ETFs are experiencing withdrawals. As large funds pour in, some investors are redeeming physical silver rather than ETF shares. This “run” on the ETF’s silver reserves puts pressure on the stockpile. Wind data shows that during the week of November 24, silver inventory at the Shanghai Gold Exchange dropped by 58.83 tons to 715.875 tons, a new low since July 2016. COMEX silver inventories fell from 16,500 tons in early October to 14,100 tons, a 14% decline.

Liquidity Traps in Fractional Reserve Systems

(Source: GoldChartsRus)

Modern precious metals markets are highly financialized systems, where most “silver” is just digital entries. Actual silver bars are repeatedly mortgaged, leased, and derived across the globe—an ounce of physical silver may correspond to dozens of different rights certificates. Veteran trader Andy Schectman revealed that LBMA has only 140 million ounces of floating supply, but daily trading volume reaches 600 million ounces, with over 2 billion ounces of paper claims on that 140 million ounces.

This “fractional reserve system” works well in normal times, but when everyone wants physical, the entire system faces a liquidity crisis. Even more bizarrely, during the critical moment when silver broke $56 on November 28, CME experienced a nearly 11-hour outage due to “data center cooling issues,” setting a record for the longest outage, preventing proper updates of COMEX gold and silver futures. CME later stated that the outage was caused by human error, fueling conspiracy theories about “protecting market makers.”

JPMorgan plays a key role in this short squeeze. According to CME’s latest data on December 11, JPM controls about 196 million ounces of silver (proprietary + brokerage), accounting for nearly 43% of the exchange’s total inventory. Additionally, JPM is the custodian of the silver in the SLV ETF, holding 517 million ounces as of November 2025. More critically, among eligible silver that has delivery rights but is not yet registered, JPM controls over half of the scale. This positions JPM as the “gatekeeper” of silver, effectively controlling the physical supply in the market.

Physical Movement in the De-Dollarization Wave

Silver is not an isolated case; similar changes are happening in the gold market. Funds are quietly withdrawing from highly financialized ETFs, derivatives, and structured products, seeking physical assets that do not rely on financial intermediaries or credit backing. Central banks continue to massively accumulate gold, almost exclusively in physical form—Russia bans gold exports, and countries like Germany and the Netherlands are demanding to repatriate their overseas gold reserves.

Liquidity is giving way to certainty. When gold supply cannot meet enormous physical demand, capital begins to seek alternatives, and silver naturally becomes the first choice. Bloomberg reported in October that global gold is shifting from West to East, with over 527 tons of gold flowing out of New York and London vaults since late April. Meanwhile, import volumes in major Asian gold-consuming countries like China have increased, with China’s August gold imports reaching a four-year high. To adapt to these market shifts, JPMorgan announced it would move its precious metals trading team from the US to Singapore by late 2025.

Behind the surge in silver prices is a return to the “gold standard” concept. While it may be unrealistic in the short term, one thing is certain: whoever controls more physical silver has greater pricing power. The essence of this movement toward physical assets is a re-competition for monetary pricing power amid a weakening dollar and de-globalization. When the music stops, only those holding real gold and silver can sit comfortably.