Over the past eight months, silver has staged a historic rally, surging up to 179% and briefly surpassing the $100 per ounce milestone. Such dizzying price action often leads markets to intuitively attribute the peak to the simple notion that "excessive gains equal risk."
Recently, silver has exhibited roller-coaster volatility. After hitting an all-time high near $121.8 per ounce on January 29, it reversed sharply, plummeting over 35% to around $73 on January 31, marking its largest single-day drop on record. The metal then experienced wild swings, rebounding before turning lower again, with another steep decline of over 13% during trading on February 5. Within just days, silver retraced approximately 40% from its peak, nearly erasing its year-to-date gains amid extreme market turbulence.
A recent research report from Caitong Securities, led by Xu Chenyi, noted on February 1 that silver's historical peaks have never been formed through natural market trading but are instead the result of "forced braking." Essentially, major tops in silver represent a process of leverage unwinding. The current silver market has seen volatility spike to historical extremes (over 1800%), exchanges have aggressively raised margin requirements (five consecutive hikes within a month), and the silver-to-oil ratio has become severely distorted (exceeding 1.8). For investors, the core risk now lies not in fundamental supply and demand but in exchange rule changes and the potential normalization of extreme volatility. History appears to be rhyming, suggesting the silver market has entered its most dangerous phase of speculation.
Volatility Alert: From Normalcy to an Uncontrolled 1800% If rising prices are a symptom of market fervor, then volatility acts as a thermometer measuring whether the market is spinning out of control. Historical data shows that since 1978, silver's 60-day standard deviation—a key measure of volatility—remained below 200% for 93% of the time, indicating a normal market state. However, before the recent crash, silver's volatility had surged to a staggering 1800% or more. This is not merely a numerical jump but an extreme manifestation of structural fragility in the market. The report highlights that such extreme volatility levels are typically unsustainable, and the process of "volatility normalization" has historically coincided with sharp price corrections. When orderly price increases devolve into a disorderly casino, a crash often follows closely.
The Lethal "Brake": Consecutive Exchange Margin Hikes The collapses of silver's two most famous bubbles—the 1980 Hunt Brothers squeeze and the 2011 JPMorgan short squeeze—were ultimately terminated by exchange intervention. The 1980 lesson saw COMEX implement its notorious "liquidation-only" rule and ban new positions, directly severing liquidity for long positions. In 2011, the CME raised margins five times over nine days, a "boiling frog" approach to deleveraging that caused silver prices to crumble rapidly. Fast forward to 2026, the script is repeating. The CME has raised margins five times in under a month, with an increasingly aggressive recent pace. On December 12, 2025, initial margin was raised from $22,000 to $24,200; on December 29, to $25,000; and on December 31, significantly increased to $32,500. On January 28, the margin ratio was raised from 9% to 11% (and from 9.9% to 12.1% for high-risk accounts). Just three days later, on January 31, it was hiked again from 11% to 15% (16.5% for high-risk). The exchange's intent to cool the silver market is now unmistakable. This method of forced deleveraging by increasing holding costs has historically been the sharpest needle for pricking silver bubbles.
Collapse of Pricing Logic: Extreme Deviation in Relative Valuations When an asset's price completely detaches from its reference points, it ceases to be driven by value and becomes dictated by sentiment. The report highlights two key ratios demonstrating the current frenzy in silver. The gold-to-silver ratio has fallen to around 42, approaching the lower end of its historical range. While not yet at the extreme of 15 seen in 1980, it is near the 31 level of 2011, indicating a very high premium for silver relative to gold. More critically distorted is the silver-to-oil ratio, perhaps the most alarming current data point. Historically, this ratio fluctuated between 0.2 and 0.5. Currently, it has surged beyond 1.8. This implies that silver's price has completely divorced from its industrial commodity attributes, transforming into a pure speculative game. When a ratio breaks so violently from its historical range, the favorable odds have likely been fully exhausted.
Macro Headwinds: A Strong Dollar and Tighter Liquidity Beyond internal structural risks, the external macroeconomic environment is also shifting subtly. The report specifically mentions the potential impact of Trump nominating Kevin Warsh as the next Fed Chair. Warsh's policy leanings, combined with the current U.S. stagflation environment, suggest that quantitative tightening and restoring dollar credibility will be primary themes. This points to a potential rebound in the U.S. dollar index after a significant decline and a general tightening of liquidity, which would fundamentally undermine precious metals that have been supported by abundant liquidity. Furthermore, while Middle East tensions (such as potential conflict with Iran) might provide short-term safe-haven pulses, the anticipated easing of Sino-U.S. relations during Trump's expected visit to China in April could further diminish the safe-haven premium for precious metals.
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