I’m undertaking a 1000-day reinvention project, blogging here daily to track my progress. In Thursday Thinker, I share a smart idea or theory.
Today I want to share a theory from Andy Shectman, founder and CEO of Miles Franklin Precious Metals, about silver. I’ve lately been digging into precious metals as an investment (and as a thing in the world that industry needs), and I’m eager to evaluate any frameworks I find for understanding why the price of silver has gone parabolic beyond just the usual speculative frenzy and FOMO drivers.
Here’s a video about a potential contagion risk from a supply-demand imbalance in the silver market. You don’t need to watch it because I had Gemini summarize it (such a useful feature!) and I’m going to tell you the key points around the silver market.
Use of AI for this article: I have digested and reformulated what Gemini provided, using Gemini’s language in many cases but restructured for my own, and your, understanding.
Schectman proposes that there is a massive contagion risk facing the traditional financial system as physical demand for precious metals begins to overwhelm paper-based manipulation (via futures contracts and ETFs). He argues that we are witnessing a historic shift where “big money” and sovereign entities are no longer settling for cash but are demanding physical delivery of metals such as silver and gold, signaling a loss of trust in fiat currencies and the US Dollar’s reserve status.
Increasing volume of physical silver delivery
For the past 16 months, Schectman notes, entities have been “standing for delivery” on the COMEX (the world’s primary futures and options exchange for trading metals). In December alone, Schectman notes, 68 million ounces of silver were delivered, the largest monthly volume in history.
To check this claim, I found this article from Schiff Gold, another precious metal dealer and noted goldbug: Elevated Silver Delivery Colume Has Metal Leaving Comex Vaults. The article shares a chart of contracts delivered by month for the “minor months” characterized by lower trading volume and fewer contract deliveries compared to one of the major months. The minor months include January, so it makes sense to only look at January 2026 in context of those months, not all months. A standard COMEX silver futures contract represents 5,000 troy ounces of silver, so this chart shows actual volume of silver delivered not the price of it. You can see the January volume is tremendous (as is September, the tallest green bar you see a little before that).
Schectman’s first claim checks out.
What does it mean for individual investors? First we need to know what’s driving this demand for physical silver.
The players behind this
Schectman believes the buyers behind this increase are sovereign wealth funds and large institutions seeking to quietly build up stores of physical bullion. He suggests the US, for example, may be covertly bringing gold and silver back to domestic vaults to secure national interests.
Additionally, Schectman discusses industrial demand for silver. He argues that silver is undergoing a fundamental shift from being viewed as mostly a precious metal to a strategic industrial necessity. Silver is the most electrically conductive metal on earth, making it critical to bringing about the AI revolution. It is not substitutable with cheaper metals without significant performance loss. So for multi-million dollar data centers, the demand is inelastic. Tech companies will pay almost any price to secure it. There is little to no demand destruction from higher prices.
He also suggests, controversially, that the “military-industrial complex” is a massive, opaque consumer of silver. It’s used in everything from Tomahawk cruise missilves (500 ounces per tip = $50,000 at $100/ounce) to satellite systems and missile guidance. The U.S. historically has depleted its silver stockpile, leaving the military vulnerable, goes the argument. This has led to the recent critical mineral designation from the Trump administration, to protect domestic defense supply chains.
The supply-demand imbalance
Data shows that silver has been in a structural deficit for several consecutive years. Mine supply has remained relatively flat, since silver is mostly a byproduct of copper and lead mining. Schectman argues that the market has hit a breaking point where there simply isn’t enough physical metal to satisfy both industrial and monetary buyers.
Contagion risk?
The contagion risk Schectman identifies would be where a systemic failure was triggered by the exhaustion of physical silver and gold suppliers in the face of massive paper-market obligations.
The primary risk stems from the fact that for every ounce of physical silver in a vault, there are hundreds of “paper” claims (futures contracts and ETFs). Historically, only about 1% of traders asked for the physical metal. The problems begin when big money (e.g., mega-cap tech companies) and sovereign entities stop settling for cash and start demanding physical delivery.
If a major exchange like the COMEX (U.S.) or the LBMA (London) cannot fulfill these delivery requests because their registered (i.e., deliverable) inventory is empty, they have to change the rules. They might settle contracts in cash or “force-liquidate” positions. This would destroy trust in the exchange, leading to a panic where everyone simultaneously tries to exit paper assets and enter physical ones.
Next, the Bullion Banks — large institutions like TD Bank or UBS — that hold massive short positions panic. They have historically sold silver they don’t have to keep prices suppressed. If prices spike and they are forced to buy back physical metal to cover their positions, they face multi-billion dollar losses. Because they are interconnected, a failure at one institution regarding silver could freeze the credit lines for other parts of the banking system, similar to the 2008 Lehman Brothers collapse.
While this is happening, the world will realize that the US Dollar is only as strong as the system that backs it. Schectman argues that when the physical metal breaks the paper market, it proves that the dollar has been artificially propped up. Nations will dump US Treasuries to buy gold, causing inflation to skyrocket and the value of paper investments to plummet.
Is this a likely scenario
I shared a chart showing that indeed demand for physical delivery of silver has surged. Now we see the price of both gold and silver parabolically increasing. And, there’s evidence of dysfunction in the commodity exchanges.
As of late January, the COMEX is facing a mathematical impossibility for the upcoming March delivery cycle. Registered silver stocks — the metal actually available for delivery — have fallen to just over 30 million ounces. Open interest in the March contract represents over 500 million ounces of potential demand. Every single ounce of physical silver in the vault is currecntly backing roughly 20 ouncse of paper promises. If even 10% of contract holders stand for delivery, the exchange would effectively be empty.
Meanwhile, there have been reported breaks in the delivery chain, particularly in Eastern markets. In mid-January 2026, a member of the Shanghai Gold Exxchange reported a delivery failure where buyers requested 64 tons of silver, but sellers were only able to deliver one ton. In Rajko, India (a major silver hub), 44 trading firms reportedly declared insolvency after being caught short and unable to source physical metal to settle their obligations.
The mechanism that usually keeps global silver prices the same has snapped. The market has entered deep backwardation, where the price for immediate delivery is significantly higher than the price for delivery in the future. This shows that the market values having the metal now over any paper promise of metal later.
Risks and opportunities for individual investors
Tomorrow in my Friday Flash I’ll write about what this means for individual investors. Should you invest in gold and silver? Via what vehicle? If you do, besides the obvious risk of a price crash in either of the metals, what other risks are there? They include government confiscation of your holdings. This sounds crazy like something out of 1933, when President Franklin D. Roosevelt issued Executive Order 6102, commanding all persons to deliver their gold coins, bullion, and gold certificates to the Federal Reserve. In turn they were compensated but the government turned around and revalued gold much higher the next year, devaluating the dollar (which people still held) and giving the government a large profit overnight. Could something like that really happen in the 21st century? I’ll consider that tomorrow.