Author: Xiao Bing, TechFlow
In the December precious metals market, the spotlight wasn't on gold; silver stole the show with its stunning performance.
Surging from $40 to $50, $55, then $60, it rocketed past one historical price level after another at a seemingly uncontrollable pace, barely giving the market time to breathe.
On December 12th, spot silver briefly touched a record high of $64.28 per ounce before plummeting sharply. Since the beginning of the year, silver has soared nearly 110%, far outpacing gold's 60% gain.
This appears to be a "highly rational" rally, which ironically makes it look very dangerous.
The Crisis Behind the Rally
Why is silver rising?
Because it seems to deserve it.
From the perspective of major institutions, it all makes sense.
Renewed Fed rate cut hopes have rekindled the precious metals rally. Recent weak employment and inflation data have led the market to bet on further cuts in early 2026. As a high-beta asset, silver's reaction is more volatile than gold's.
Industrial demand adds fuel to the fire. Explosive growth in solar energy, electric vehicles, data centers, and AI infrastructure has fully highlighted silver's dual nature (precious metal + industrial metal).
Declining global inventories worsen the situation. Q4 production from mines in Mexico and Peru fell short of expectations, and silver bar stocks in major exchange warehouses have shrunk year-on-year.
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If you only look at these reasons, the silver price increase is a "consensus," even a long-overdue revaluation.
But the danger of this story lies here:
The silver rally looks rational, but feels fragile.
The reason is simple: silver is not gold. It lacks the universal consensus gold enjoys and misses the "national team" backstop.
Gold's resilience stems from central bank purchases worldwide. Over the past three years, global central banks have bought over 2,300 tons of gold, sitting on their balance sheets as an extension of sovereign credit.
Silver is different. Global central bank gold reserves exceed 36,000 tons, while official silver reserves are nearly zero. Without central bank support, silver has no systemic stabilizer during extreme market volatility, making it a classic "island asset."
The difference in market depth is even more striking. Daily gold trading volume is around $150 billion, while silver's is only $5 billion. If gold is the Pacific Ocean, silver is at best Poyang Lake.
The market is small, with fewer market makers, insufficient liquidity, and limited physical reserves. Importantly, the main form of silver trading is not physical metal but "paper silver," with futures, derivatives, and ETFs dominating the market.
This is a dangerous structure.
Shallow waters capsize easily; a large influx of capital can churn the entire surface.
And that's what happened this year: a sudden flood of capital entered the already shallow market, rapidly pushing prices sky-high, detaching them from their foundation.
The Futures Squeeze
What's driving the silver price isn't the seemingly rational fundamental reasons above; the real price war is in the futures market.
Normally, the spot price of silver should be slightly higher than the futures price. This makes sense because holding physical silver incurs storage and insurance costs, while a futures contract is just a piece of paper and naturally cheaper. This price difference is generally called "backwardation."
But starting Q3 this year, this logic reversed.
Futures prices began systematically exceeding spot prices, and the gap kept widening. What does this mean?
Someone is aggressively pushing prices up in the futures market. This "contango" phenomenon typically occurs in only two scenarios: either the market is extremely bullish on the future, or someone is orchestrating a squeeze.
Given silver's fundamental improvement is gradual—solar and new energy demand hasn't exploded exponentially in a few months, and mine output hasn't suddenly dried up—the aggressive behavior in the futures market looks more like the latter: capital pushing futures prices higher.
A more dangerous signal comes from anomalies in the physical delivery market.
Historical operational data from COMEX, the world's largest precious metals exchange, shows that physical delivery accounts for less than 2% of precious metals futures contracts; the remaining 98% are settled in cash or rolled over.
However, over the past few months, physical silver deliveries at COMEX have surged, far exceeding historical averages. More and more investors no longer trust "paper silver"; they demand actual silver bars.
A similar phenomenon is happening in silver ETFs. While massive capital flows in, some investors are redeeming shares, demanding physical silver instead of fund units. This "bank run"-style redemption puts pressure on ETF silver bar reserves.
This year, the three major silver markets—COMEX in New York, LBMA in London, and the Shanghai Metal Exchange—have all experienced bank runs.
Wind data shows that in the week ending November 24th, silver inventories at the Shanghai Gold Exchange fell by 58.83 tons to 715.875 tons, hitting the lowest level since July 3rd, 2016. COMEX silver inventories plummeted from 16,500 tons in early October to 14,100 tons, a 14% drop.
The reason isn't hard to understand. Amid the US dollar rate cut cycle, market participants are reluctant to settle in dollars. Another underlying concern is that exchanges might not have enough deliverable silver available.
The modern precious metals market is a highly financialized system. Most "silver" exists only as book entries, while actual silver bars are pledged, loaned, and used for derivatives repeatedly worldwide. One ounce of physical silver might correspond to over a dozen different claim certificates.
Veteran trader Andy Schectman cites London as an example: LBMA only has 140 million ounces of supply...
