Transcription
The silver market is breaking. Absolutely wild moves in the precious metals, with silver soaring yet again through $75 per ounce and huge dislocations happening all across the globe. So, a $258 billion move just today alone, just in silver. A quarter of a trillion dollar move, uh, just today.
This chart showing one of the dislocations that we will get to, uh, in the silver market at the end of the video. Uh, but first, I want to point out gold, $31 trillion market cap. Silver, only about $4.3 trillion. So, to move the price of gold by 10% would require an inflow of about $3 trillion. Well, to move the price of silver by 10% would only require about $430 billion.
But it's not just the precious metals that are mooning today. So, uh, this shows copper, which is soaring up about 5% on the day. But it is really silver, uh, that is just ripping faces. Uh, so silver is up by 6.3% on the day, just today alone. Gold, up by about 1%, uh, soaring to a new all-time high.
I want to point out that with gold, uh, excuse me, with silver, uh, the 10-day rate of change, so the price appreciation of silver over the past 10 days. You have to go all the way back to the summer of 2020 to find a move in silver, uh, of this magnitude. Now, of course, uh, the global, uh, economy had just been shut down, and we also had massive supply chain issues as well back then. So, the fact that silver is making moves only comparable to that period of time is pretty, uh, telling.
Now, it has broken out of a 60, 70-year cup and handle formation that you can see right there. This chart is just absolutely incredible. Over the past 3 months, so for Q4 of 2025, uh, just over the past 3 months, silver is up by 64%. Over the past 6 months, so for the second half of 2025, silver is up by 112%. And over the past month, silver is up by a whopping 35%. So, just wild moves in silver.
Now, what is going on? Well, part of it is probably the debasement trade. So, uh, currency debasement, or the printing or dilution of dollars. Uh, this is something that the mainstream media is kind of finally starting to talk about. Here is a way to illustrate that debasement trade. So, a lot of people will look at the price of gold or the price of silver, and it's ripping higher. It's going parabolic. But they don't realize that the inverse of that is the same information, is just the another way to look at the same information. Uh, the white line shows the price of gold denominated in dollars. The blue line showing the dollar denominated in gold, which of course has been collapsing, going arguably all the way back, uh, to the Nixon shock of 1971. Uh, but it has started to accelerate here, uh, going back to late 2023. That is really when gold started to break out. Uh, or put another way, uh, dollars started to just absolutely collapse again relative to scarce assets like gold and silver.
Now, the other part of it, which is similar in kind of in line with the debasement trade, is that the market might be expecting negative real rates. What is a real rate? That is the inflation-adjusted yield that you get for buying a US Treasury bond. Now, in this case, we're looking at the 10-year Treasury bond. Right now, you get 1.4%. This is inverted, by the way. You get 1.4% uh, inflation-adjusted yield. So, the yield that you get on a 10-year Treasury is 1.4%, 4% above the rate of inflation. Uh, but again, remember this chart is inverted. So, we went from negative real rates here to positive real rates. And yet, the correlation, uh, between gold, uh, broke down, and we could see the price of gold actually had one of its highest 12-month rate of changes. The price of gold, uh, ripping higher by about 72% over the prior 12 months, despite the fact that real rates have actually been getting more positive. This is a break of a correlation that has held for, uh, 50, 60 years, uh, where negative real rates generally, uh, correspond to price appreciation of gold.
Now, why is that? Well, if you are guaranteed to lose money in inflation-adjusted terms by buying a US Treasury bond, uh, something like gold is going to, uh, be much more appealing. But the, the opposite, or the inverse, is also true, which is if a 10-year Treasury bond gives you 10% yield above and beyond inflation, just to use an extreme, well, something like gold that offers no yield, uh, is not going to be very, uh, appealing to you. So, that is why this correlation, uh, is so important. But again, markets are forward-looking instruments. No, if the market is expecting a future expectation of negative real rates, again, due to the fiscal health of the US, uh, negative real rates are almost mathematically required. Uh, then the market is going to price that in ahead of time. That could be a bit of what we are seeing over the past two or three years, where this correlation has started to break down, where gold has started to rip higher again, despite the fact that real rates have actually gotten more positive. The market could be looking ahead to the next 12 months, 18 months, uh, and listening to what President Trump and key policy, uh, uh, key, uh, cabinet officials are saying, like Kevin Hassett, for example, that are talking about continued cuts to the overnight interest rate, the federal funds rate, uh, despite the fact that inflation is at 3%, no matter how you measure it, uh, and assets are at all-time highs. We know that they are going to try to run it hot. They have all said that. Uh, President Trump even just recently, over the past couple of days, made yet another comment about 25% uh, GDP growth.
But it's not only, uh, the debasement of the dollar relative to scarce assets like gold and silver. It is also the dollar weakening relative to other currencies. So, this is zooming, uh, in a bit, just to late October up through now. We can see a pretty strong negative correlation between the price of gold and the DXY dollar index. This compares the dollar relative to other major currencies. And again, it's inverted. So, as the white line is going up, the DXY, the dollar is weakening relative to other major currencies. We can see that generally, uh, uh, corresponds to an appreciation of the price of gold. And when the DXY dollar index starts to move higher, uh, gold generally starts to take a bit of a breather.
Now, this is one of the, uh, places that we saw a dislocation back in October. Now, silver, uh, was much lower in terms of price. It was, uh, in the mid-50s back then, but we saw a huge dislocation, called backwardation, where spot silver was $2.60 more than the front-month futures contract at the COMEX. And this chart goes all the way back, uh, to the 1990s. So, you can see how rare backwardation is, especially backwardation of that magnitude. Well, what we are seeing now, uh, is much more normal. However, uh, there is a lot more volatility in this particular spread. Uh, we are in contango, which again, is much more normal, uh, for that particular metric.
Now, I wanted to point out the price appreciation of gold, silver, platinum, palladium. They have outperformed the S&P 500, save for palladium. Uh, going back the past 25 years, gold has wildly outperformed, uh, the S&P 500. This is price return, not including dividends. 1,500%. And again, gold offers no yield. Uh, that is why I'm measuring the price return of the S&P 500. But, uh, of course, there are dividends. If you measure the total return, it is still nowhere near, uh, the level of appreciation that you've gotten if you saved your money in silver or gold. Silver, uh, close behind it. However, if we zoom in on just the past 12 months, just year-to-date, uh, over the past 12 months, we can see that gold, silver, platinum, palladium, all wildly outperforming the S&P 500, which is up about 18%. Uh, gold and silver and platinum and palladium, uh, just absolutely crushing, uh, the S&P 500. Remember, once you account for the fact that the DXY dollar index, the dollar has weakened relative to other currencies, the real, uh, uh, price appreciation of the S&P 500 is much more like one and a half or 2%.
Here's an interesting post talking about how the silver market might be breaking, uh, from Carl MK. So, here he says, the one-year silver swap minus the US interest rate is now 7%. That distortion explains why the silver rally is not over. There might be more upside to come. Only at the red line do supply and demand normalize. That red line on a chart being zero. Uh, below is how the silver swap works. The spread should be positive since silver needed in one year comes with storage, insurance, and financing costs. Uh, the silver swap rate is a critical part of the global precious metals trade. It exists because major players such as banks, producers, industrial users, and investors constantly exchange, uh, silver for dollars without wanting to physically move the metal from vault to vault. That mechanism keeps the London physical market tightly connected to the New York financial market. Uh, COMEX being largely a paper market, derivatives market. But that system is now under strain. Physical silver is now almost 7% more expensive than silver for delivery one year from now. Swaps were designed to avoid shipping metals around the world. Yet, silver is being moved because buyers are demanding physical delivery. Holding physical silver is not easy or cheap. So, uh, despite that fact, uh, you have, uh, firms all over the world standing for physical delivery. Again, despite the fact that it's not easy nor cheap, a $1 million position of silver weighs several hundred kilograms, spread across dozens of heavy bars that require vault space, insurance, and security. Still, manufacturers such as solar panel producers, very, very large source of silver demand, increasingly prefer physical silver today rather than paper exposure with delivery a year from now. The key question that they are asking is simple. What if silver cannot be delivered next year? That question is now being priced in. As long as the one-year silver swap minus US rates remains below the red line, silver's upside pressure continues. No one knows where supply and demand will reconnect.
But I also wanted to show the options chain on SLV. So, uh, silver is a very popular trade with the retail trading community. Uh, you know, think, uh, Wall Street Bets and that sort of thing. And, uh, that trading community generally likes to buy out-of-the-money calls. Well, that is how you got a gamma squeeze on AMC and GameStop. Uh, was mainly, it was mainly options-driven gamma squeeze, much less a short squeeze. There was actually a paper written about it, uh, that found that about 65% of those crazy moves we saw in those meme stocks was due to a gamma squeeze. Now, why is this? Uh, very, very simply, to not get, uh, super in-depth with options. If I buy an out-of-the-money call option, I'm gaining leverage. That options contract represents 100 shares, but it's out of the money. Uh, so the dealer that is selling me that contract, that is short the call option that sold it to me, uh, they need to hedge, uh, by buying the underlying. But again, because it's way out of the money, uh, there's pretty low probability that they will actually have to sell me anything at the price, at the strike price that I bought. So they only buy say, five dollars, uh, or five shares worth of the underlying. But as the price moves higher, as more contracts go in the money, uh, the delta moves to one. And, and of course, they are constantly having to rehedge, uh, that contract. They might have initially only had to buy $5, but as the price moves higher and the likelihood of my call contract, uh, going in the money goes up, they have to buy more and more shares. That is as the delta of the options contract is increasing, and more and more contracts, more and more call contracts are going in the money, they are constantly having to buy more and more of the underlying. The delta rapidly approaches one as you reach the strike price. Uh, and of course, this is a gamma squeeze. Gamma is, uh, simply the sensitivity of that delta, the change in that delta. So, uh, this is something to watch. I think that the retail trading community, uh, while they might not be the primary driver of what is going on in silver, again, about 50% of silver is industrial demand. I do think that watching the options chain on something like SLV, which is the most common, uh, uh, most, uh, liquid, uh, ETF to track the physical price of silver. I think it is worth watching, uh, if you are curious about the moves in gold and silver, because again, uh, that retail trading community, uh, has a very, very, they are very sympathetic, uh, to silver.
I also wanted to point out here, here's a video showing an a line out the door in Singapore as gold and silver reach all-time highs. And then I wanted to finish up with the dislocation where the dislocation is actually happening. So, here, Eric Young on, uh, X. I would highly recommend everyone follow him. He points out that the only pure silver play in China, uh, in their A-share market is the UBS SDCIC silver futures, uh, and then gives a ticker there. This is literally the only public fund in mainland China that focuses purely on silver, tracking the Shanghai Futures Exchange silver futures contracts. It's a listed open-ended fund, uh, that doesn't matter so much for what we're going to look at here. Now, with the global silver smashing all-time highs, spot silver $72 recently, best year since 1979, this fund has gone absolutely nuts. It is up by 220% year-to-date on the secondary market, way outperforming the actual silver futures, which is only, only a 128% gain. But here's the big warning flag, extreme premium. The trading price has been trading at a massive premium to NAV. NAV's net asset value peaking over 60%, even hitting 68% at one point. That's insane. The fund manager, UBS SDCIC, has been issuing risk warnings left and right, over 14 times this month alone. And they've slammed restrictions, daily purchase limits down to as low as 100 RMB. Not very much at all. Uh, and then he points out that we have seen consecutive limit ups. Uh, that is when the, uh, trading gets halted due to too much upside volatility, 10% daily cap, limit up, uh, restriction, then bam, a sharp limit down to -10% recently, as the frenzy turned. So, classic volatility in a hyped-up commodity play.
So, to finish up, that is the dislocation that we are starting to see. Is Shanghai Futures silver, uh, is wildly outperforming, or wildly more expensive, uh, than the front-month futures contract for COMEX. Uh, so here we can see the spread between the two of them in green. Uh, in white, we're looking at Shanghai, the price of the front-month silver futures contract in Shanghai. And then in orange, we're looking at the front-month futures contract in COMEX. Uh, again, much more of a Western derivatives-based sort of, uh, uh, exchange. And here's a note as to why we might be seeing such a premium over there in the East relative to the West. Record low in inventories on the Shanghai Futures Exchange, uh, at multi-year lows, only around 531 tons in December 2025, the lowest in more than 10 years, due to massive drawdowns from industrial demand. Remember, silver is about 50% industrial demand. A lot of, uh, demand comes from things like solar panels, EVs, and clean energy sectors, where China accounts for over 50% of global demand, outpacing supply and creating backwardation. We are seeing that backwardation, not in COMEX, not over here in the West, but we are seeing it over there in the East, again, due to the fact that people are standing for physical delivery because there is a concern over whether or not they can get, uh, actual physical delivery in, say, one year. Import constraints and local physical buying pressure for immediate delivery. While COMEX is more paper and derivatives-driven, cash-settled, uh, allowing it to trade lower without reflecting the same amount of urgency. Although it did reflect some urgency back in October, we are not seeing that lately. Uh, but again, uh, if we are entering this kind of reflation, early business cycle sort of, uh, uh, uh, environment, you are going to see continued upside pressure in commodities, and again, silver is critical. This is why the US is looking at making a strategic reserve of silver. The, the West and the US is finally waking up to the fact that you need to actually have physical commodities for stuff. You cannot have your entire economy structured around a bunch of derivatives traders and high-frequency trading firms, uh, on Wall Street, you know, scraping pennies off of every transaction. That is not a real economy. You actually have to be able to make real things. Well, to make real things, you need actual physical commodity. So the US is looking at creating a strategic reserve, and silver, uh, is being restricted in China as well. So, uh, we are, we, we definitely reached kind of peak globalization, and the pendulum is starting to swing back in the other direction. So, uh, countries are looking out for their national interest. That is part of what is driving this. So, anyways, hopefully that was helpful, and I'll catch you in the next.