Silver Hits Record, Then Retreats as Speculation Intensifies

Silver's recent price action has drawn intense investor focus after a sharp rally carried the metal above $84 an ounce early Monday, before prices slid back toward $70 in thin post-holiday trading. Despite the abrupt reversal, silver remains up more than 150% this year, a move that could reflect a powerful mix of speculative positioning and tightening market conditions. Buying activity in China has been a major force behind the surge, with heavy participation in the Shanghai Gold Exchange's silver contract in December pushing local premiums to record highs and pulling global benchmarks higher. The pace of demand became strong enough that China's only pure-play silver fund stopped accepting new investors last week after repeated risk warnings and tighter trading rules failed to cool enthusiasm fueled by social media.Investment demand outside China has also continued to build. Holdings in physical-backed silver exchange-traded funds have increased by more than 150 million ounces this year, according to Bloomberg calculations, with inflows recorded in every month except one. While total holdings remain below the peak seen during the 2021 retail-driven surge, these inflows have played a role in reducing available supply in an already tight market. Speculative interest has also shown up in derivatives, with call option buying accelerating across both silver futures and related ETFs. For iShares Silver Trust (SLV), total call volume reached its highest level since 2021 last week, while the cost of buying calls relative to protective puts climbed to historical highs in December, suggesting that positioning for further upside has become increasingly expensive.At the same time, several signals suggest the rally may have advanced too quickly. Silver rose more than 25% in December, marking its biggest monthly gain since 2020, and its relative strength index stayed above 70 for much of recent weeks, a level often associated with overbought conditions. Exchanges are now moving to manage risk, with margins on some Comex silver futures contracts set to rise from Monday, potentially forcing some traders to reduce or close positions. Structural strains remain in the background, including elevated borrowing costs in London following a squeeze earlier this year and uncertainty surrounding a US Section 232 probe into critical minerals. With gold having rallied earlier in the year and the gold-silver ratio now falling after previously stretching above 100 to 1, silver's next move could depend on whether speculative demand continues to outweigh these emerging headwinds.