I’m undertaking a 1000-day reinvention project, blogging here daily to track my progress. In Saturday Reflections, I take time out to reflect.
Last week I wrote about freestyle investing, and this week, skiing freestyle down the slopes of silver and gold, I crashed. Or rather silver and gold did, but it felt almost as bad as the ski accident I had last November.
Silver reached over $117 per ounce in a parabolic run and then a historic all-time high of $121.78 on Thursday before yesterday’s big crash down to $85 an ounce, a loss of over 30%, 25% of that in one day. Gold followed a similar, but less severe, rise and fall.
Knowing that buying at an all-time high can actually lead to gains, I nibbled a little throughout the week on silver and also added some more gold, a metals and mining ETF ($PICK), uranium miners ($URA), junior silver miners ($SILJ), and gold miners ($GDX). I added those last ones during the crash yesterday so the prices weren’t too bad, though there may be more carnage coming.
However, I’ll note that though one could use an all-time high rule to get in and out of the market, there are a few caveats to that. The research that backs that idea up used a monthly buy/sell day to enact the rule not just what I did: doing it on a day of your choosing because the asset is reaching an all-time high. What I did was just retail FOMO.
I kept positions small and I don’t ever use leverage, so while my portfolio was down a bit yesterday, this was more of a lesson for me than a disaster. And wow, were there interesting learnings!
A digression about recklessness
I’ve been reading the dark folklore book Uprooted by Naomi Novik each night before bed. It’s a good way to get my mind off of precious metals and commodity exchange trading to think about things with more import, like dark woods that take people away and turn them into monsters.
The two main characters in the novel are the young woman Agnieszka and the reclusive wizard the Dragon, who takes her away from her village for her to serve him for ten years. The Dragon teaches Agnieszka to do magic and she uses it to help save her village and her friends and family from the predation of the “Wood” (the evil forest).
Agnieszka and the Dragon have completely opposing magical styles. The Dragon has a more rigid, academic approach. In my terminology, he is reckful — controlled and careful. Agnieszka, on the other hand is wild and intuitive. She’s a mess, but it works for her. She’s reckless. She doesn’t wait until she knows what the right thing to do is or how to do it, she just blusters forward and experiments.
Here’s her description of her style, when she was seeking a cure for the Wood’s possession of a person:
If I had been an indifferent student before, now I was dreadful in a wholly different way. I turned ahead in books and took ones he didn’t give me down from the shelves if he didn’t catch me. I looked into anything and everything I could find. I would work spells out halfway, discard them, and go onward; I would throw myself into workings without being sure I had the strength. I was running wild through the forest of magic, pushing brambles out of my way, heedless of scratches and dirt, paying no attention where I was going.
This describes me, running wild through the forest of precious metals, pushing brambles out of my way, falling down, tearing my clothes, skinning my knee, but ready to get up again and keep up the work.
A note on AI usage: I use ChatGPT and Gemini for researching posts like these, but I restructure and rewrite what they produce so that I absorb the facts and ideas and produce what I can stand behind. There may be hallucinations here, but I do check facts and anything funny sounding myself before sharing it. I encourage you to do your own listening, reading, and research alongside reviewing what I share. This is not financial advice; it is just for my own edification and entertainment — and yours.
What happened to the silver and gold market yesterday? Squeezing out liquidity
News media ran with reports that Trump’s announcement of Warsh led to the crash in the precious metals market. That didn’t make sense because everyone knows Warsh will do Trump’s bidding, and Trump wants lower interest rates. Lower interest rates likely mean higher inflation, which means more demand for gold and, to a lesser extent, silver.
Yesterday, I asked, is there market manipulation going on? and I’ve seen some evidence there was.
But now I’m convinced that the primary driver was the COMEX (commodities exchange where silver futures are traded), acting to drive excessive leveraged bets out of its system, to stabilize it.
On Twitter, @EndGameMacro wrote about margin changes that CME (Chicago Mercantile Exchange, the parent company of COMEX) made to margin requirements for trading silver and gold futures with leverage. Leverage is when you borrow money to make your trade, allowing you to make (or lose) much more money for a given amount of capital you put in:
The key shift is how margins are being calculated. CME has moved more explicitly toward percentage of notional margining rather than static dollar amounts. That matters because fixed dollar margins quietly increase leverage as prices rise. Percentage based margins do the opposite because they automatically tighten leverage as prices go vertical. This is CME preventing leverage from expanding precisely when it’s most dangerous.
This changes traders’ behavior:
Margin hikes reshape market behavior. Higher collateral costs force weaker hands out, reduce open interest, and thin liquidity. Ironically, thinner liquidity can mean bigger gaps, which can justify even higher margins. That feedback loop is how volatility feeds on itself.
There was too much liquidity in the silver market, where liquidity is the ease of turning your investment capital into funding for trades. And the silver market is very small, one reason that it is so volatile. A lot of money is chasing a relatively small amount of actual physical silver.
How big is the paper and physical silver market?
Global mine production of silver is roughly 830 million ounces per year. At $80 an ounce, that’s a total physical “new supply” of about $66 billion. Throughout human history, we have minded roughly 57 billion ounces of silver. But silver is consumed, unlike gold. It is industrially useful, so about 40 to 50% of that 57 billion ounces has been lost to landfills. Also there’s our jewelry and silver flatware — about 20-25 billion ounces of silver still above ground.
In vaults, silver is held as coins, bars, and ingots. This is the stock that can be traded. The global total is about 1.4 to 1.6 billion ounces. The bulk of it lives in the London Bullion Market Association (LBMA — roughly 850-900 million ounces — much of it owned by ETFs like SLV), New York (COMEX – rough 415 million ounces — at a ten-year-low having dropped 22% since September, and Shanghai (SGE). The Royal Canadian Mint (RCM), where my holdings via $PSLV are stored, holds a total of about 217 million ounces with a total value of $18.59 billion. This is fully allocated, meaning every single bar has a serial number and is legally owned by PSLV trust unitholders, not the mint itself.
Meanwhile, the notional (paper-based) value of silver traded on the COMEX and London markets can exceed $5 trillion in one year. The financial paper market for silver trades the equivalent of the entire world’s annual mine production every few days.
While the LBMA and COMEX report hundreds of millions of ounces in their vaults, about 80% of that is already spoken for. It belongs to ETFs like SLV or to private billionaires. The actual silver available to settle a contract is estimated at just a little more than one hundred million ounces.
In January 2026, we saw 33 million ounces withdrawn in a single week. At that pace, the entire free float of the Western world would vanish in about five weeks.
The exchanges only have one ounce of silver for every 378 promises. By raising margin requirements, COMEX was trying to reduce that ratio to avoid a run on silver, in which people rush to claim physical metal because they worry that they won’t be able to get it.
You might think, “that’s crazy, how can they do that? It’s gotta be illegal.” But it’s not. It’s similar to fractional reserve banking, where when you deposit your money, the bank turns around and lends a lot more money based on that money.
There can be bank runs, where depositors worry they won’t be able to get their money out, for example if their bank made bad loans that don’t get paid back. The Federal Deposit Insurance Corporation (FDIC) exists as a backstop to both make it less likely bank runs will occur (because people know their savings are guaranteed, to a point) and to reimburse people when a bank does fail.
Why COMEX did what they did
COMEX could have declared Force Majeure (a clause that allows a party to get out of a contract because of an act of god or unforeseeable disaster) and then used Rule 701 to say “We do not have the silver bars go give you. Therefore we are declaring an emergency.” They can then force a cash settlement instead of giving you the silver bars you have a claim on (other people have claims on those bars too!)
Because of the recent inventory drain, where COMEX registered silver has hit 50-year lows (around 108 million ounces) with claims for nearly 490 million ounces of silver for the March delivery month. March is a major delivery month, and it poses a real-world math problem. As of this week, there were over 100,000 open contracts for March — contracts for delivery of silver. Each contract represents a promise to deliver 5,000 ounces of silver. If you do the math (100,000 contracts x 5,000 ounces = 500 million ounces of paper claims on silver) you see that there are claims far beyond what COMEX could deliver.
Now not everyone wants the physical silver. Most traders holding the contracts are just using them for financial reasons, not to get actual metal. In a normal month 95% of traders roll their contracts — closing the March one and buying a May one. But if this time is different, for example if 25% of those March contract holders say “I want my 5,000 ounces of silver,” the COMEX would need 125 million ounces. But it doesn’t have that much.
In January, there was a delivery spike. Approximately 48.8 million ounces of silver were marked for delivery in January. This is roungly 4.1x higher than the delivery volumes from January 2025 (which was about 11.8 million ounces). In just one week, 33.45 million ounces were physically withdrawn. That single week accounted for roughly 26% of the entire COMEX registered inventory being delivered into private hands.
What did JP Morgan do yesterday?
A report from COMEX shows that JP Morgan called for delivery of 633 silver contracts at yesterday’s low, $78.29. That’s 633 x 5,000 ounces of silver, or about 3 million ounces, a little less than 10% of the amount of physical silver physically withdraw in January’s big week.
Before that, JPM was short silver — betting the price would go down — but was trapped as it soared to $120. The COMEX margin changes that were enacted Friday forced thousands of smaller leveraged traders to sell their silver in a panic (or because they had to, because they couldn’t meet their margin calls). This allowed JPM to get silver at a much lower price than otherwise.
Seems a little fishy to me!
Open interest for March
Earlier this week, when silver was approaching its $121 peak, the Open Interest for the March contract (i.e. number of contracts held by traders and investors for that month) was about 106,000 (representing over 528 million ounces). As of Friday’s close the OI for March has dropped to roughly 91, 790 contracts, a drop of about 13%. This means nearly 70 million ounces of paper claims were deleted in one day.
The silver market is now on better footing, but how much exactly is unclear. While the Friday crash successfully washed out speculators who were betting on price with borrowed money, it likely didn’t do much to stop out the entities who actually want the metal. These are the “strong hands” compared to the “weak hands” who were just speculating.
March remains a massive potential problem for the COMEX. Most of the 13,893 contracts that disappeared on Friday were managed money (hedge funds) forced out by margin hikes. The people who are draining the vaults — industrial users and sovereign buyers — don’t trade on 10x leverage. They have cash to meet new margin requirements, especially with a lower silver price.
There are still 91,790 contracts still open for March — 458 million ounces of claims, compared to 108 million ounces available. If March sees demands for delivery as high as the January spike week, the COMEX will be bankrupt of silver.
Now let’s talk about my holdings
I purchased shares of the Sprott Physical Silver Trust ($PSLV), a closed-end trust that holds actual physical silver for each shareholder. While the COMEX is bleeding silver, The Sprott trust is growing at a record pace.
What the heck?
PSLV acts like a one-way valve. When the trust trades at a premium to the actual value of silver it holds, it uses an “at-the-market” (ATM) program to issue new shares. They take the new cash and immediately go into the market to buy physical 1,000 ounce bars. Once those bars arrive at the Royal Canadian Mint, they are allocated. They aren’t for sale. They aren’t used for leverage. They are removed from the global supply. For the time being.
Sprott trust shareholders can withdraw actual physical silver, but only if they hold enough units to redeem ten 1,000-ounce bars. At roughly $80 an ounce, that is $800,000. But even if you have the $800K, you have to arrange for armored transport for 700 pounds of silver from Ottawa. So most shareholders don’t use the trust to get actual physical silver; they just use it to hold it as an investment. The liquidity of the Sprott trust is in the ability to sell the shares on the stock market exchanges, not the ability to back a truck up to the mint.
So $PSLV is a one-way valve, whereas COMEX is a revolving door.
My predictions for the future
No one knows what the future holds. Many people are calling for a further dump of precious metals on Sunday evening when Asian markets open. I’ve done enough researching how the various exchanges relate to one another, so I’m not ready to tackle that question right now.
I will say this: there is good evidence of a supply-demand imbalance in the physical silver market. Now that silver is back under $100 an ounce perhaps entities wanting or needing physical silver will take more steps to claim it, before the price gets squeezed even higher.
I find it useful to think of multiple ways a situation might play out, and I used Gemini to help me think through how different scenarios might unfold.
The deep cleanse – silver dumps more next week
CME has already raised margins again. The dollar could rise further, as it did on Friday. Though many were washed out on Friday, some middle tier traders may be clinging on. A further drop to $65 or $70 would trigger a cascade of sell orders hitting empty air, since much of the trading capital was siphoned out of the system.
The first sign this may be happening will occur on Sunday night, when Chinese markets open. China is 13 hours ahead of New York. The Shanghai Futures Exchange (SHFE) and Shanghai Gold Exchange (SGE) will open while the US is still having Sunday dinner — 6 pm to 8 pm Eastern time. Before the Friday crash, Shanghai was trading at a massive premium to the New York price. Where will it go Sunday night? It’s a harbinger of what will happen in the U.S. the next day, though the two markets do not always stay in sync, especially now that China’s new January 2026 export/import rules mean that only a few state-sanctioned firms can move the metal.
The boring grind – silver ranges right where it is for a while
The big banks like JPM have covered enough shorts to stop panicking. The strong hands aren’t selling their remaining March contracts. The price of silver bounces between $75 and $85.
If the price is flat but the registered silver at COMEX (silver available for physical deliver) continues to drop by $1-2 million ounces a day, the grind is actually a countdown to a new leg up.
The snapback – silver resumes its march upwards
The market realizes there is still a physical shortage; the dip just made it cheaper for industrial users to buy. A short squeeze 2.0 begins as banks scramble to find physical metal to settle their promises.
The price starts grinding higher, not parabolically, but step by step as those who really really want physical silver must find a way to buy it, and they will all be competing with one another.
More to come
I’m fascinated by this, enough that it helps distract myself from yesterday’s crash in precious metals. I can’t wait to read and write more about it.
No matter what happens Sunday night and Monday morning, it will be interesting!
The purpose of life is to live it, to taste experience to the utmost, to reach out eagerly and without fear for newer and richer experiences.
— Eleanor Roosevelt