The Setup: Real Shortage, Real Speculation
Silver’s been in structural deficit for five straight years, and that’s expected to continue through 2026, according to Metals Focus. London vaults held just 136 million ounces by September before recovering to 200 million by year-end, still way below the 360 million available during the Reddit rally in early 2021. Refining capacity is bottlenecked, so even with recyclers rushing in at these prices, scrap metal isn’t flowing back fast enough.
The physical tightness is legitimate, but speculation is doing most of the work right now. The gold-silver ratio hit 50-to-1 last Friday, the tightest in 14 years. BofA’s Michael Widmer thinks fair value is closer to $60, not $103, citing softer solar demand and industrial pullback at these price levels.
Behavior: Pure FOMO
Fear of missing out is pushing prices higher — retail buyers are snapping up small bars and coins, ETFs are seeing inflows, and traders are chasing breakouts instead of waiting for pullbacks. COMEX inventories have dropped 114 million ounces since early October as metal pours into U.S. stocks, and according to Reuters, another 113 million ounces would need to leave just to get back to pre-election levels.
What Happens Next?
BNP Paribas strategist David Wilson expects profit-taking to hit “sooner rather than later, particularly in view of ongoing physical market easing,” and I think he’s right. As long as gold’s near $5,000 and geopolitical risk stays high, silver’s going to keep getting a boost from being the cheaper way to play precious metals.
But excessive speculation will catch the eye of margin regulators at the Chicago Mercantile Exchange, and they’ll raise margins just like they did twice in December. I know what a big margin call can do — I saw it with the Hunt Brothers in 1979-1980. When speculators are forced to liquidate because they can’t meet margin requirements, the selling comes hard and fast.
They say “the height of the market is often decided by the length of its base”. If you’re using a 10 to 20 year base then $100 and beyond makes sense. But if you’re using the October to November base of $54.49 to $45.55 then this rise isn’t justifiable and ripe for a correction. Based on that recent consolidation, our value zone target sits at $75.50 to $67.67.