Silver plumbing

Silver had an incredible year in 2025. Triple digit returns, with a structural supply-demand imbalance that is pushing prices up. But what’s even more incredible, and not so visible, is the plumbing of the silver market. In simple terms: (1) the spot market tells us the price of an ounce of silver today. It trades in London, Dubai and Shanghai. It’s the physical market. Silver bars need to comply with certain characteristics (weight, purity, dimensions), which is provided by refiners, and guaranteed by exchanges. (2) We also have the futures market in Chicago (COMEX) where you can buy or sell silver on a future date, at a specific price. If you’re a miner, a chip maker or a jeweler, you can maximize the visibility of your sales or your inventory into the future. There are also speculators, that simply bet on imbalances looking for a profit. The link between the physical market and the futures market is clear. And typically, the futures price is above the spot, to take into account the time value of money, plus storage costs, etc. Well, all that is backwards. The chart below shows you the price of physical silver in China, which controls 2/3 of the global silver refining capacity, above the futures price in Chicago. Furthermore, China has imposed a silver export ban as of today, January 1st 2026, whereby no silver will be able to leave the country, and the vaults of physical silver in London and Dubai are already decimated, which means that if a Jeweler or a chipmaker (Samsung, TSMC) want to have their maturing futures contracts delivered in silver bars, not in dollars, there is no metal for them. And settling in dollar doesn’t work for them, since they cannot build chips with dollars. Which brings us to the last leg, the bullion banks, the banks that control the vaults and “manage” the delivery of physical silver. Those banks (the usual big ones) are net short silver, which means they’re in a very uncomfortable, huge, losing position. And it appears (not able to confirm) that the big hole in their books is being covered by the Fed through the REPO market. The liver market is a relatively small one, with $4Tn in total, but it was less than $2tn a year ago, and less than $1Tn, 2 years ago. The implications of this imbalance go beyond the metal itself. It may affect the global financial system, which is mostly dominated by US banks, and China has found a choke point. In the context of a trade war, Taiwan, and the fight to become a geopolitical behemoth, what do you think they’ll do?

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