The crazy silver day: How to play in the eyes of a storm when it becomes a reality?

The greatest test of the trade is often not to hold out in despair, but whether you can still hear the dark currents of the deep sea when the zealous waves take your prophecy to the top.

Author: Campbell.

Compiled by 0xMedia

Ten days have passed since Campbell made a systematic analysis of silver. And in this short 10 days, the price of silver rose by about 25 percent in an amazing way.

The market is not calm. China announced that it would introduce a licensing system for silver exports from 1 January 2025; that the Shanghai physical price had touched $91 per ounce, while the COMEX closing price was only around $77; that the London spot and forward market were still in a significant inverted state; and that the CME had announced an upward adjustment of the deposit on precious metals.

After recombining those changes, Campbell argued that long-term logic had not been compromised, but that the short-term was not suitable to pursue.

The more rational strategy is to wait for a back-to-back phase. More flexibility in risk management is required if participation is to take place through options.

What happens when trade textbooks rarely discuss the fact that your judgement is not only valid but that it is moving faster than expected?

At this point, investors manage not only financial exposure but also emotional volatility. It was only a hypothesis in a probabilistic model and has now become a real profit position. You need to revisit all the variables and take seriously the upcoming reverse narrative.

It is in this context that Campbell undertook a complete reset of short-term risks and medium-term opportunities for silver.

I. Short-term empty factors: Which pressures may emerge?

Campbell believes that in the next one or two weeks, the silver and silver will be overstretched by short-term pressures from several realities. It is no surprise that there has been a reversal in the market. The key is the nature of the reversal.

Currently, the Campbell team has made the following adjustments:

Move some of the risk convertibles to gold
The current approximate warehouse position is 15% gold + 30-40% silver (formerly even higher)
It's also configured to watch the butterfly and the dollar to see the future.

Short-term empty pressure is mainly from the following areas.

1. Tax push: time point issues

The increase in silver is already remarkable. For investors built up this year and held for less than a year, selling by 31 December will face higher short-term capital gains taxes.

This can lead to a structural phenomenon:

End of year: Investors are reluctant to sell and support
Early January: Tax window closed, pressured and released

In other words, the support now may be the source of the backlash.

2. Reverse winds in United States dollars and interest rates

The recently released US GDP data are clearly biased, which may reduce market expectations for short-term interest rate reductions. The policy dimension could be a trade-off between a stronger dollar and a higher short-term interest rate.

In either case, the short term would be detrimental to the dollar-denominated precious metals assets.

3. Increase in the bond but less lethal

CME announced an upward adjustment of the precious metal futures bond effective 29 December. Historic experience makes it easy to think about the situation in 2011, when silver peaked.

According to Campbell, however, the current market structure is completely different.

In early 2011, the silver futures bond was only about 4 per cent of the nominal principal, corresponding to 25 times the leverage. The bond was then quickly pushed up to about 10 per cent, leading to the collapse of the lever and the silo.

And now the silver deposit is close to 17 percent, equal to six times leverage, even more conservative than it was in 2011. In other words, the high leverage has been cleared long ago and the market is not going to be smashed because of a small change in the bond.

Against this background, it is more likely that a further increase in the bond would affect hedges and traders than trigger large-scale speculative liquidations. The result is more likely to be a decline in liquidity than a collapse in prices.

Limitations of over-buy narratives

When prices fluctuate, the sound of technology "over-buy" becomes inevitable. According to Campbell, however, this argument ignores the core driving behind silver prices.

The long-term logic of silver is not in the form of technology, but in the form of highly rigid demand and extremely inflexible supply. Against this background, the new height of history does not mean the end, but is often only part of the trend.

Copper replacement: It does exist, but very slowly

"Bron instead of silver" is one of the most common empty views. Campbell believes that this logic works, but the rhythm is seriously overestimated.

Even with sufficient funding, physical and engineering constraints persist: around 300 solar-cell manufacturing plants around the globe, with a single plant retrofit cycle of about 1.5 years, with limited capacity for annual parallel retrofitting. Even from now on, it will take at least four years to achieve about 50 per cent of the copper replacement.

At the same time, even if the price of silver rises to its current level, it does not touch the real demand-bust zone. It is estimated that the demand in the solar energy sector is about $134 per ounce, which is significantly higher than current prices.

More paradoxically, the shift from PERC technology to TOPCON, HJT is increasing the demand for silver in the short run.

The price of silver has risen at a much faster rate than the rate of plant renovation. This four-year window period is exactly the moat of investment logic.

II. Multi-head logic: Why could this thing get out of control?

The empty element is finished, and that's why Campbell's still looking at silver.

1. China began tightening its exports of silver and silver

As of 1 January, China will implement a licensing system for the export of silver.

This is crucial. China is the world ' s largest net exporter of refined silver, exporting about 121 million ounces of silver to overseas annually, the vast majority of which flow to the global market through Hong Kong.

This supply route now requires government approval to continue to operate. This is no longer an ordinary trade management measure, but a strategic resource-level regulation.

2. Significant increase in in-kind premiums

Prices in different markets are now clearly fragmented:

Shanghai: about $85/ounce
Dubai: about $91 per ounce
COMEX: About US$ 77/ounce

You live in a world of dollar pricing, but not for marginal buyers. They're willing to pay a $10-14 premium in kind without hesitation.

When there is such a big deviation between physical and paper prices, historical experience tells us that problems are often not in kind.

3. London cash is tight

What really happened was the London OTC Market, which connects the bank, the refinery and the industrial users.

And now, the London silver market is at its deepest spot in decades.

What do you mean, a spot-on? Simply put, the silver is now more expensive than the silver is promised in the future.

Equivalent to: spot > forward price. This is a typical supply stress signal.

Compare:

A year ago, the spot was $29, the long way up to $42, the normal futures-up structure.
Now: 80 dollars in cash, and in the long run it's 73 dollars, totally upside down.

At the same time, the paper market of COMEX continues to maintain a warm and elevated water structure.

Three markets, three completely different stories.

4. Volatility rates have been reprioritized

The options market has begun to take the risks of silver and silver seriously.

Implied volatility of the right to a flat-value option: 27% ~ 43%
Implied volatility of options by margin: 50-70%

This means that the market is pricing downside risks of extreme increase.

According to Campbell, the current round moves more along the oblique curve of the volatility rate: by buying up price differentials, selling part of the upside space and, in the near future, configuring a six-month butterfly option structure, while reducing short-term directional openings, the possibility of extremes remains.

5. Speculation of funds is not crowded

From the hold-up structure, silver is not at the "crowding" stage.

Net gold speculation: about 31 per cent of unsettled contracts
Silver speculation net multiple: only 19%

Even when prices have risen dramatically, there is room for the silver bank to continue staggering at the financial level.

6. ETF funds are just beginning to flow back

As prices rose, investment demand rebounded, confirming Campbell's earlier judgment:

The silver is beginning to take on characteristics similar to Van Buren's, and the higher the price, the stronger the demand.

The share of SLV flows is growing again after years of net outflows. This is not a traditional commodity behaviour, but a return to monetary attributes.

At the same time, the Chinese market premium remains: Western ETFs have just begun to buy, while Eastern demand in kind has never stopped.