Silver crisis, as the paper system begins to fail

Written by: Xiao Bing｜Deep Tide TechFlow

In December, the precious metals market’s main character is not gold; silver is the brightest light.

Rising from $40 to $50, $55, $60, it has passed through one historical price level after another at an almost uncontrollable speed, leaving little room for the market to breathe.

On December 12, spot silver once reached a historical high of $64.28 per ounce, only to plummet sharply afterward. Since the beginning of the year, silver has risen nearly 110%, far outperforming gold’s 60% increase.

This appears to be an “extremely reasonable” rise, but it also makes it particularly dangerous.

Crises Behind the Rise

Why is silver rising?

Because it looks worth it.

According to mainstream institutions, all of this makes sense.

The Fed’s renewed expectation of rate cuts has rekindled the precious metals rally. Recently, weak employment and inflation data have led the market 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 surge. Explosive growth in solar energy, electric vehicles, data centers, and AI infrastructure has fully demonstrated silver’s dual nature (precious metal + industrial metal).

Global inventory levels continue to decline, exacerbating the situation. Mining output from Mexico and Peru in Q4 fell short of expectations, and silver ingots stored in major exchanges’ warehouses are decreasing year after year.

……

If these reasons are all you consider, the rise in silver prices is a “consensus,” even a belated reassessment of its value.

But the danger lies in the story:

The rise of silver seems reasonable, but it is unstable.

The reason is simple: silver is not gold; it lacks the same consensus and “national team” backing.

Gold remains resilient because central banks worldwide are buying. Over the past three years, global central banks have purchased over 2,300 tons of gold, which are reflected on national balance sheets as sovereign credit.

Silver is different. The world’s gold reserves exceed 36,000 tons, while official silver reserves are nearly zero. Without central bank support, during extreme market volatility, silver lacks any systemic stabilizer and is a typical “island asset.”

Market depth disparities are even more pronounced. Gold’s daily trading volume is about $150 billion, while silver is only $5 billion. Comparing gold to the Pacific Ocean, silver is more like Poyang Lake.

It has a small size, fewer market makers, insufficient liquidity, and limited physical reserves. Most critically, silver’s primary trading isn’t in physical form but in “paper silver,” dominated by futures, derivatives, and ETFs.

This structure is dangerous.

Shallow waters are prone to capsizing; large capital inflows can suddenly disrupt the entire surface.

And what happened this year is precisely this scenario: a sudden influx of funds pushed a market that was already shallow, driving prices away from the ground.

Futures Short Squeeze

What causes silver prices to deviate from fundamentals isn’t the seemingly reasonable reasons above; the real price war takes place in the futures market.

Under normal circumstances, spot silver prices should be slightly higher than futures prices. This makes sense because holding physical silver involves storage costs and insurance, while futures are just contracts, naturally cheaper. This price difference is generally called “contango.”

However, starting from Q3 of this year, this logic has been reversed.

Futures prices have begun to systematically exceed spot prices, with the spread widening. What does this imply?

Someone is疯狂ly pushing up futures prices. Such “futures contango” usually only occurs under two conditions: either the market is extremely bullish on the future or there is a short squeeze.

Considering that the fundamentals of silver are improving gradually—solar and new energy demands won’t explode exponentially in a few months, and mine output won’t suddenly dry up—the aggressive behavior in the futures market resembles the latter: funds are pushing futures prices higher.

A more dangerous signal comes from anomalies in the physical delivery market.

Data from the world’s largest precious metals trading platform, COMEX (New York Mercantile Exchange), shows that physical delivery accounts for less than 2% of precious metal 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. More investors no longer trust “paper silver” and are demanding actual silver bars.

Similarly, silver ETFs have experienced the same phenomenon. While large inflows of funds have entered, some investors are redeeming and requesting physical silver instead of fund shares. This “bank run” pressure on ETF silver reserves strains the holdings.

This year, the three major silver markets—New York COMEX, London LBMA, and Shanghai Gold Exchange—have experienced similar bank run waves.

Wind data shows that during the week of November 24, silver inventories in Shanghai Gold Exchange dropped by 58.83 tons, to 715.875 tons, reaching a new low since July 3, 2016. COMEX silver inventories plummeted from 16,500 tons in early October to 14,100 tons, a 14% decline.

The reasons are straightforward: in a cycle of dollar rate cuts, traders are unwilling to settle in USD; another hidden concern is that exchanges might not have enough silver available for delivery.

Modern precious metals markets are highly financialized systems. 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.

Senior trader Andy Schectman cites London as an example: LBMA has only 140 million ounces of floating supply, but the daily trading volume reaches 600 million ounces. On this 140 million ounces, there are over 2 billion ounces of paper claims.

This “fractional reserve system” functions smoothly under normal conditions, but once everyone demands physical delivery, a liquidity crisis can occur.

When crisis shadows loom, markets often exhibit a strange phenomenon colloquially called “pulling the plug.”

On November 28, CME experienced an nearly 11-hour outage due to “data center cooling issues,” setting a record for the longest downtime, preventing proper updates of COMEX gold and silver futures.

Notably, the outage occurred during a critical moment when silver prices broke through historical highs—spot silver surged past $56, and futures even broke $57.

Market rumors suggest the outage was to protect market makers exposed to extreme risks and potential large losses.

Later, the data center operator CyrusOne stated that the outage was caused by human error, fueling various conspiracy theories.

In short, the行情 dominated by futures short squeezes is doomed to be highly volatile. Silver has effectively shifted from a traditional safe-haven asset to a high-risk target.

Who is controlling the market?

In this short squeeze drama, one name cannot be overlooked: JPMorgan Chase.

The reason is simple: it is recognized internationally as the “silver whale.”

Between at least 2008 and 2016, JPMorgan manipulated gold and silver prices through trader interventions.

Their methods were straightforward: placing large buy or sell orders in futures markets to create supply-demand illusions, inducing other traders to follow, then canceling orders at the last second to profit from price swings.

This spoofing technique eventually led JPMorgan to a $920 million fine in 2020, setting a record for the largest single penalty by the CFTC.

But the market manipulation book is far from over.

On one hand, JPMorgan used大量空头 and spoofing in futures to suppress silver prices; on the other hand, it accumulated大量实物金属 at its COMEX warehouses during periods of declining silver holdings by other large institutions.

Starting around 2011, when silver approached $50, JPM began stockpiling silver in its COMEX vaults, gradually increasing its holdings to account for up to 50% of total COMEX silver inventory as others reduced their positions.

This strategy exploited structural flaws in the silver market, where paper silver prices dominate physical silver prices, and JPM can influence both. It is one of the largest holders of physical silver and controls the price in the paper silver market.

So, what role does JPMorgan Chase play in this round of silver short squeeze?

On the surface, JPM seems to have “reformed.” After the 2020 settlement, it undertook systematic compliance reforms, including hiring hundreds of new compliance officers.

There is no current evidence that JPMorgan participated in the short squeeze, but it still wields significant influence over the silver market.

According to the latest CME data on December 11, JPMorgan’s total silver holdings under the COMEX system amount to approximately 196 million ounces (proprietary + brokerage), nearly 43% of all exchange inventory.

Moreover, JPMorgan has a special role as custodian of the silver ETF (SLV), holding 517 million ounces of silver valued at $32.1 billion as of November 2025.

More critically, in the category of Eligible silver (qualified for delivery but not yet registered as deliverable), JPMorgan controls over half of the stock.

In any silver short squeeze, the real market game boils down to two points: first, who can provide physical silver; second, whether and when these silver stocks are allowed into the delivery pool.

Unlike the former silver big short seller, JPMorgan now sits at the “gatekeeper” position of silver.

Currently, only about 30% of total silver stocks are available for delivery, and with most Eligible silver concentrated in a few institutions, the stability of the futures silver market largely depends on the actions of a few key nodes.

Paper System Gradually Failing

If we had to describe the current silver market in one phrase, it would be:

The行情 is still continuing, but the rules have changed.

The market has undergone an irreversible transformation;信任 in the “paper system” of silver is collapsing.

This isn’t unique to silver; similar changes are happening in the gold market too.

Gold inventories on the NY Futures Exchange continue to decline, with Registered gold repeatedly hitting lows, forcing the exchange to transfer gold from the “Eligible” category, which was not originally intended for delivery, to fulfill matching.

Globally, capital is quietly migrating.

Over the past decade, mainstream asset allocation has been highly financialized—ETFs, derivatives, structured products, leverage tools—all can be “securitized.”

Now, more funds are withdrawing from financial assets and seeking physical assets that do not rely on financial intermediaries or credit backing, with gold and silver being prime examples.

Central banks are continuously and massively increasing gold holdings, almost without exception in physical form. Russia has banned gold exports, and countries like Germany and the Netherlands are also calling for the repatriation of their overseas gold reserves.

Liquidity is giving way to certainty.

When gold supply cannot meet huge physical demand, capital begins to look for alternatives, and silver naturally becomes the first choice.

The essence of this physicalization movement is a weakening dollar and a re-competition for monetary pricing power in the context of de-globalization.

According to Bloomberg in October, global gold is shifting from West to East.

Data from CME and LBMA shows that since late April, over 527 tons of gold have left vaults in New York and London, the two largest Western markets. Meanwhile, gold imports in Asian major markets like China have increased, with China’s August gold imports reaching a four-year high.

To adapt to these changes, JPMorgan plans to relocate its precious metals trading team from the US to Singapore by the end of November 2025.

The surge in gold and silver prices signals a return to the “gold standard” concept. While short-term implementation remains unlikely, it is clear that whoever controls more physical assets will have greater pricing power.

When the music stops, only those holding real gold and silver can sit comfortably.