Silver at USD 90: when hard-asset demand meets momentum

A rally that feeds on its own speed

What makes the current move in silver look particularly dramatic is not just how far it has gone, but how fast it has travelled. The numbers tell the story. Silver is up 28% year-to-date and an eye-watering 194% over the past 12 months. Over the last month alone it has gained around USD 30. It took roughly ten days to move from USD 60 to USD 70, but the final USD 10, from USD 80 to USD 90, took just six days.

In silver, speed is information: as prices accelerate, trend followers, options hedging, and FOMO reinforce a reflexive move. Because the market is far smaller and less liquid than gold, relatively modest flows can move prices by dollars, especially once key technical levels are breached.

That does not mean fundamentals are irrelevant. Perceptions of tight supply, whether in physical bars, coins, or exchange inventories, matter enormously. Even the idea that “available” silver is becoming scarce is enough to keep bids layered in the market. But in the late stages of a parabolic move, price is often driven more by positioning and risk management than by a careful balancing of supply and demand.

When does demand destruction show up?

Every rally eventually meets its limit, and for silver the most likely brake is industrial demand destruction. At some price level, fabricators and end users simply cannot absorb higher costs. They either try to pass them on and fail, cut back on purchases, or look for substitutes. The important point is that this process does not happen overnight, but at USD 90, this process has probably begun in some parts of the supply chain, but it takes time before it becomes obvious enough to change the market narrative.

Rather than guessing a precise “top,” the more robust approach is to watch for signals. Physical premia in key hubs, delivery times for industrial users, and the behaviour of exchange-traded funds can all offer clues. A particularly interesting divergence right now is that while prices have surged, Western-listed silver ETFs have seen net outflows, with holdings this month down by around 7.9 million ounces to roughly 856 million. That suggests that a significant part of the current demand is coming from elsewhere, notably Asia and especially China, or from more leveraged financial players rather than long-only Western investors.

Futures margins, not manipulation

As silver has exploded higher, so have futures margins, and this has sparked the usual chorus of accusations that the exchange is trying to “suppress” the price. This is a misunderstanding of how futures markets work. Margin is a payment designed to ensure that all participants, long and short, can meet their obligations when prices move. In a market that is swinging several dollars a day, the risk of large mark-to-market losses rises sharply. If margins were left unchanged, the clearinghouse would be exposed to an unacceptably high probability of default by one or more participants.

That is why the CME recently shifted silver margins from a fixed dollar amount to a percentage of notional value, setting it at 9%. In practical terms, this simply means that as the price of silver rises, the amount of capital required to hold a contract rises in proportion. Historically, that level is not far from long-term averages for a volatile precious metal.

Crucially, higher margins apply to everyone. They make it more expensive to hold a leveraged long position, but they also make it more expensive to hold a leveraged short. Their purpose is to limit leverage and protect the integrity of the market, not to pick winners and losers. In fact, in a parabolic rally, higher margins often increase volatility rather than reduce it, because weaker hands, on both sides, are forced to resize or liquidate positions.

Who really risks getting squeezed?

Much of the social-media narrative around silver focuses on the idea of a giant, predatory bank short that will eventually be forced to cover at any price. The actual positioning data tell a more nuanced story. The net short held by swap dealers, often loosely described as “banks,” has been steadily reduced and is now broadly in line with producer hedging, both around 25,000 contracts. The bulk of the long exposure sits with speculators and a residual category labelled “others.”

If there is squeeze risk in this market, it is more likely to be found among participants with fragile funding. Producers, for example, can face a painful cash-flow mismatch in a violent rally: they have to post margin daily on hedges, but they only receive cash when their metal is eventually sold and delivered. In a market that is moving USD 5 or USD 10 in a matter of days, that mismatch can become very uncomfortable very quickly.

Some of the recent price action, perhaps USD 10 to USD 20 of it, also appears to have been fuelled by financial demand chasing rumours of huge bank shorts. The simplest way to reality-check those stories is to look at the share prices of the institutions in question. They are not behaving as if they are sitting on catastrophic, unmanageable losses.

The magnet of USD 100

For now, the next obvious focal point is USD 100. Round numbers matter in markets, especially in something as emotional and momentum-driven as silver. They act as magnets for trend followers and as psychological milestones for investors and the media. At the same time, they are often where profit-taking, new short selling, and tighter risk limits converge.

Whether silver overshoots, stalls, or violently reverses around that level will tell us a lot about how much real buying power is still behind this move. What is already clear is that the world’s demand for hard assets, and for silver as their high-beta cousin, is not a fleeting fad. It is a response to a macro environment that feels unstable, indebted, and politically charged.

Silver may not go in a straight line from here. Nothing ever does. But while the forces that launched it toward USD 90 are still very much in place, we are mindful that rumour-driven positions may have added USD 10–20 to the price and could just as quickly evaporate. Also worth noting, that the gold-silver ratio which for the past 25 years averaged around 70 ounces of silver to one ounce of gold, briefly hit 107 last April before starting its month long slump to near 50, a level that in our opinion no longer gives silver a valuation edge over gold.