SILVER - All That Glitters is not Gold

There is so much codswallop (Oxford dictionary = nonsense) on X these days that one is tempted to open a Truth Social account, or perhaps watch the Melania “documentary/horror” flick. It is rare to see a single digit rotten tomatoes score (6 in this case). Hopefully its production was funded in Melania Meme Coins (all time high $18.86, currently $0.17). Actual funding Mr. Bezos, concurrent with cutting Washington Post staff by 1/3!

Back to silver!

The total return graph below shows that $SLV, the largest silver ETF on the planet, run by the venerable Blackrock (US$14tln in total AUM), has been the place to be when it comes to speculation. Panic seeks liquidity, as I will explain in this post.

X bots have been ranting about the basis (premium in this case) between where silver has been trading in China vis-a-vis world markets (USA serving as the proxy for same).

UBS sponsored SDIC Silver Futures Fund is listed on the Shenzhen Stock Exchange (SZSE) under the ticker 161226 (A shares). Premiums for silver traded via this instrument hit up to 60% ($160 for $100/oz silver!) before the exchange took action. The fund stopped accepting new subscriptions from Jan 28, 2026 “to protect existing investors and avoid unsustainable leverage”. Trading halts for short time periods (1 hour) before full-day trading halts were announced. With little visibility provided as to when “normal” trading would resume, traders were left with little choice but to effect a “dirty hedge” stuck long SDIC (161226) with no foreseeable window to sell, some instead sold the most liquid silver ETF, SLV in USD to delta hedge their silver exposure. Cross market risk, yes. Foreign exchange risk, ditto. Time zone exposure, you bet. Still better than a naked long when the sky is falling and the forecast is “cloudy with a chance of meatballs”. SLV, the gorilla silver ETF with $30bln + in AUM closed the day mullered (Oxford dictionary = wrecked or destroyed), not just down lock-step with silver but -19% to the funds NAV (net asset value). Let that sink in, SLV closed Friday at almost a 20% discount to the silver they own! ETF’s, especially large ETF’s rarely deviate by more than 1% from their NAV. In the peak funk of C-19 EFT discounts got to -4% before rebounding at pace on trillions in government support programs (just under 20% of GDP in the case of Canada, never fully utilized, but “on offer” nonetheless).

The near 30% one-day correction in silver is epic in terms of scale. In Jan 1980 a similar instance was observed/endured when the levers and pulleys at the markets avail thwarted the attempt of the Hunt brothers to “corner” the silver market. Rare indeed, 46 years ago! Their substantive “thumb” on the scale of the silver market took the price from $6/oz in 1979 to almost $50/oz when the rug was pulled.

The CME Group’s COMEX metal exchange is the dominant futures exchange now, with open interest, at time of print, of 156,637 contracts. Each contract is for 5,000 troy ounces of silver. This translates to 783 million troy ounces of silver which is 24.35 metric tonnes (30% of annual world silver production). Notably, this is several times the listed inventory of silver in the vaults at COMEX. This is why open interest is watched closely!

Shanghai Futures Exchange (SHFE) has a silver futures contract, denominated in RMB (Chinese Yuan) with a contract size of 15kg (482.26 troy ounces) of silver. Open interest for the front contract 02/2026 is 98,515 contracts. Local demand, VAT and delivery dynamics cause the SHFE silver to trade at an exaggerated premium to COMEX.

LBMA (London Bullion Market Association), created in 1997, is an international trade association representing the global market for gold and silver bullion. LBMA’s client base is extensive; ETF-backed stocks like $SLV, central banks, institutional holder and other custodial accounts. The silver in the LBMA vaults underpin the global OTC (over-the -counter) bullion market. In most instances the OTC market dwarfs the futures market. LBMA’s silver inventories were last reported at 27.2 metric tonnes.

Risk is “controlled” in the futures market via margining (e.g. requiring all customers, regardless of credit standing, to post margin).

CME (COMEX) margin requirements for silver:

January 13, 2026: CME Group shifted from fixed dollar compensation margins to a percentage‑of‑contract‑value system for precious metals, including silver.
Under the new method, margins automatically scale with price levels, helping ensure appropriate collateral as volatility rises, rather than lagging behind when prices jump sharply.

E.G. Instead of a fixed $20–$22 k per SI contract, margin is now a percentage of the notional value (~9–11%). This change means that margin requirements grow as silver prices rise.

Late January 2026: Following a significant rally in silver prices to near record highs:

• Standard margin for COMEX silver futures was increased to around 11% of notional value (up from ~9%).

• Heightened‑risk profiles (for speculative/retail accounts) saw margins rise to about 12.1% (up from ~9.9%).
  These hikes were implemented after the close of trading, reflecting heightened risk from extreme price moves and volatility.

The “standard” silver futures contract is for 5,000 ounces of silver. Even after a “dead cat bounce” off Friday’s lows, silver sits at US$85.15, making 1 standard futures contract worth US$425,750 in “notional” terms. Settlement is physical (silver), but in practice most contracts are settled well ahead of contract expiry (settled for fiat US dollars) or rolled into the next contract.

As is common with other futures contracts there is a “mini” silver futures contract worth 1/5th of SI or 1,000 ounces. There is a “micro” contract for 100 ounces soon to be listed as well shortly.

Fund Size approx. (USD)

United States

SLV (iShares Silver Trust)~$33 billionLargest physically backed silver ETF globally

SIVR (Aberdeen Physical Silver Shares ETF)~$3 billion Mid-size physically backed silver ETF

China

UBS SDIC Silver Futures Fund (LOF)~$0.8–1.0 billionChinese silver futures-linked fund.

SLV silver ETF, total return Jan 2024 - Jan 2026

Stay safe out there! Cross asset vol is spiking! SLV vol (annualized) is 32.4% which implies an expected daily price swing of 2.05% (32.4/sq rt 250). For SPY in comp vol is 19.5% (@), implying a 1.23% daily range.

Bitcoin, a proxy for rabid (Oxford dictionary = extreme or fanatical support or belief in something) risk appetite, is also getting poleaxed (Oxford dictionary = hit, killed, or knocked down with or as if will a poleaxe). Perhaps some of the same market actors involved, selling what they can, not what they would like to sell? Spot US$76,711.35, very close to MSTR 0.00%↑ MicroStrategy’s break even purchase price.

May we live in interesting times …. indeed.

Cheers,

JCG

PS: Feb 2, 2026, the sell-off in precious metals continues unabated with double digit percentage losses for both gold and silver. Sometimes a bubble just needs to lose their marginal buyer to crest and head back to earth. Some point to Trump’s choice for Fed Governor, Mr. Claude Warsh. By reputation a monetary hawk (boosted US dollar on announcement as measured by the DXY, I would argue an eventual dove under Republican rule (or else). I suspect more a result of the unwind of crowded trades and leveraged derivatives than Fed Governor change! In term of the big bullion banks it was rumoured that JP Morgan recently (with the last 3-4 weeks) switched from a 250 million ounce short to a 750 million ounce long.

PSS: Feb 3, 2026 Macro strategist Cameron Cise of Bloomberg cites that in addition to nervous retail punters, another factor in last Friday’s silver price downdraft was a sizeable open interest in puts on silver with strikes to as low as $70/oz. Speculators short (naked) said puts saw their value go from cents to dollars, enough to see many a trader hand in their trade blotter and plod for the exits! A highly complex cast of players in silver, clearly.

Addendum - Bullion Banks - who matters. A much smaller sub-set of banks than seen in the financial derivative markets, that is for certain!

The following banks are the core players in the silver markets (LBMA, COMEX, OTC forwards, ETFs):

Widely considered the most powerful bullion bank today

• Largest clearer of precious metals globally

• Major custodian for SLV and GLD

• Controls massive physical gold & silver inventories

• Dominant on COMEX delivery

• Key LBMA market maker

Too big to fail …. indeed. US$4tln + of the $23tln value of all US banks ($JPM 17%! 1 bank).

• Primary LBMA clearer

• Major ETF custodian

• Large London vault footprint

• Deep involvement in OTC forwards and swaps

• Inherited Credit Suisse’s metals book

• Strong in OTC precious metals derivatives

• Active in China-linked metals flows. Sponsor of aforementioned UBS SDIC Silver Futures Fund, an LOF (Listed Open-ended Fund).

• LBMA market maker

UBS became more important after the Credit Suisse collapse and UBS “take-under”.

• Major derivatives dealer (options, forwards, swaps)

• Less focused on vaulting, more on structuring & hedging

• Key player in institutional metals exposure

Goldman moves paper risk more than physical bars (E.G. Vampire Squid - Rolling Stone article re-read).

The biggest Chinese-linked bullion bank

• London-based but Chinese-owned

• Large LBMA vault

• Major conduit between China and London

• Important in gold, growing in silver

ICBC is critical for understanding China–West metals flows.