China Just Broke The Silver Market

So silver just crushed everything this year. It just became the third most valuable asset in the world. And China just did something very strategic. They stopped selling silver. Why? So let me just zoom out and explain this from the context of gold and silver. So gold is about bringing back the trust in money. It's about the reserve currencies and what backs them, which in China's case will be gold. And that's why China spent the last few decades building the Shanghai gold exchange. They're expanding what people call the gold corridor. And they're publicly buying as much gold as they can. And they're doing that to tell the world, "Hey, if you want a monetary system outside the control of the US dollar and the US empire, this might be the solution. A money that is backed by gold, stored in your countries if you want or in ours. one which we'll consider Basil 3 which means you can use it as collateral to borrow money from us if you want to build your country's economies. Okay. Now silver plays a very different role in this story. Silver is not about trust in money. Silver is about controlling a very important resource that makes the world work the way it does. And that's because silver is used in everything. solar panels and electric cars and data centers, military electronics, satellites, everything. It's considered one of the best electrical conductors on Earth. But unlike gold, when silver gets more expensive, industries don't stop buying it. They don't just wait for the price to come down because they have to use it. Which is also why one of the biggest theories about silver and gold is that for the last few decades, their prices have been suppressed and controlled to be as cheap as possible for as long as possible. But over the next decade, the demand for silver is expected to go up because of all of these applications like AI and robotics and automation and everything that the government wants control over. And because China now controls most of the refining and processing and now the export rules, China will have a huge say and who gets access to this material and who doesn't. So this story is a lot bigger than silver going up in price and beating everything this year. I want to break down exactly what China just did with silver and how all of this fits into the bigger picture of the US China rivalry and what it means not just for commodities but for global markets and investors even for people who don't own any silver at all. So with that said, let's get into it. Hi, my name is Andre Jick. Hope you're doing well. Come for the finance and stay for the silver. Okay, so here's a very simple question. How does anyone know what silver is actually worth? We know because of something called markets, right? which is where something called price discovery happens. And there's a lot of silver markets around the world that do this, but the two that really matter are ComX and Shanghai. Now, Comx is the main US futures exchange for silver, and it's where prices are discovered. And most people trading this are entities like miners hedging their production, manufacturers, or just traders speculating. That's the COMX market. Now, inside of Comx approved vaults, silver is split into two categories. The first is eligible silver, which is silver that belongs to someone who's just storing it. It is not for sale. And the second one is registered silver. This means silver that is available for delivery if someone wanted to settle a futures contract with actual physical metal. But there's a problem. Comx only has about 120 to 130 million ounces of registered silver. Silver that's available to settle those transactions. And that is only about 10% of the annual global demand, which is about 1.1 to 1.2 billion ounces a year. And that means if every trader who wanted physical silver wanted delivery of their silver at the same time, they would not be able to do that because less than 10% of it is available. So Comx was never designed to supply the world's need for physical silver. But it works for now because most contracts are rolled over and most trades are cash settled. Most investors don't want their actual silver delivered to them. Okay. So why does that matter then? Well, it matters when the behaviors of people change and they start to want their silver. And that means we need more silver because we don't have enough. So what do we do? Well, this is where the Shanghai market comes in because Shanghai silver prices are actually higher than Comx prices because Shanghai markets reflect actual physical delivery inside of China while COMX prices are mostly just paper prices, right? So when Shanghai trades a couple dollars above Comx, that means the value of guaranteed physical silver is going up faster than the value of paper. And let me show you how this just happened. On December 24th, physical silver in the Shanghai market closed at about $78 an ounce. At the same exact time, silver on the Comx market, which remember is the main Western futures market, paper silver, that closed at about $72 an ounce. That is a huge gap of about $6 per ounce. Historically, that kind of price difference is very unusual because most of the time, the premium between the two markets is way less than a dollar and rarely more than two. Why? Well, because of something called arbitrage. People see where silver is the cheapest, they buy it, and then they sell it somewhere else where it's more expensive. That is arbitrage. Arbitrage traders, as they're called, normally erase those premiums, those gaps almost instantly. Again, they buy where silver is cheaper. They sell where it's more expensive. They move the metal and the prices converge. But when there's a five or a $6 gap and it stays for hours, especially during a low liquidity holiday season like it just did, it tells us that the arbitrage isn't really working the way it normally does. And that usually means physical silver is not moving as freely. Remember, Shanghai pricing reflects what it costs to store actual deliverable physical silver inside of China. And that is the silver that is needed for manufacturers to make solar panels, electronics, etc. Comx prices here in the west by comparison are about financialized markets, right? Where most contracts are never delivered. They're never settled in silver. They're just settled in cash. Now, under normal conditions, those two systems stay linked pretty closely. But when they start to split and you get these huge price differences, it's potentially a sign that the physical supply of silver is becoming constrained or harder to source. And this chart shows total silver held in COMX approved vaults. This actually includes both silver that's eligible and silver that is registered and available. Over time, the trend is that physical silver has been flowing out of Western vaults, not building up. And historically, when registered inventory starts to get tighter, that's when physical silver becomes more expensive than paper. It's almost like China's market is forcing the Western market to repric silver higher. Okay, but why? So, I talk a lot about staying invested in the market, but I almost never talk about the other side of that, which is what do you do afterward? Because if you stay invested long enough, eventually you cross the finish line and become wealthy. Now, even though I don't think you should be showing off how wealthy you are, let's be honest, there's going to be some signs. Like for me, maybe I'll be driving around in a Lamborghini somewhere on the beach. Or maybe when Bitcoin finally hits a million dollars, I'm not going to tweet about it, but I might be in the Oval Office shaking the president's hand or flying somewhere random on a Tuesday on my private plane. Actually, I'd be flying to Bali where I'll be relaxing and working on Higsfield.ai, which is the sponsor of today's video. And it's what I used to create all of this with. It's an AI image engine powered by Google's Gemini 3 Pro image model. And what makes it so different is that it's not just about making pretty pictures. It actually understands structure, text, and realism. I had so much fun with it because it can generate clean 4K images of scenarios like cities, travel, cars, environments, and even ads and thumbnails without the usual AI problems like broken text, warped faces, weird hands, and all that stuff. And right now, Hicksfield is offering unlimited Nano Banana Pro generations for the entire year if you sign up by the deadline. It's also one of the cheapest prograde AI platforms out there. I'll put the link in the description if you want to check it out. Thanks to Higsfield for sponsoring this segment. And now let's get back to it. For most of its modern history, China's economy actually ran on silver, not gold. China's taxes were paid in silver. Big transactions were all settled in silver. Trade balances were all denominated in silver by its weight, not necessarily by its face value. So for a long time, silver was China's money. And because of that, China became one of the biggest consumers of silver that the world has ever seen. From the 1500s through the 1800s, huge amounts of silver went into China. And [music] if you wanted access to China's production, because China was and still is the factory of the world, silver was what you had to pay. Okay? But what's important here isn't that silver was just money. It's also what stabilized their economy, right? It's what stabilized their incomes, their prices, and their taxes. And it worked. But there was one big problem. And that problem was exposed in the 1930s because in 1934 the United States passed something called the Silver Purchase Act. [music] And it forced the US government to buy huge amounts of silver. And what that did was it made the price of silver go way, way up. Now, for a country that's based on a silver monetary system, that was actually really bad because as silver prices went up, silver was pulled out of China. The money started to leave the country. The money that was supposed to be used for their economy started to collapse. And how that looked like was the price of their stuff started to go down. Deflation, which at first you might be like, "Wait, isn't that a good thing? Prices going down." And it is good at first, but in the long run, deflation means people start to expect prices to fall. So they stop spending, they stop investing, and they stop hiring, and the economy starts to eat itself. Because if you know that something you want to buy is going to be worth half tomorrow, then why would you buy it today? You would just wait and wait. And you multiply that across millions of people, and that's what China got. So in response to all that in 1935, China officially left the silver standard and moved to a paper currency standard. And it's not because silver failed them as a money. It's because China learned a very useful lesson, which is kind of the whole point of this video. And what they learned is that if your economy depends on a material that you do not control, other nations can and will weaponize it against you. And that's a lesson that I think China didn't forget. And when you look at what China is doing today with silver, I think everything starts to make a lot more sense. Okay, so the question is what exactly did they just do and what are they doing now? And this is a masterclass in the global game of geopolitical chess and I want to help explain it. What they did was China reclassified silver under the dual use export control rules. And that means a material that can be used for civilian purposes can now also be used for military and strategic purposes. And once something falls under that category, then exports are no longer automatic. Instead, they're going to need government approval. It's very smart because if China wants to ban silver, like they do Bitcoin all the time, that would create a lot of backlash. A ban would force other countries to react. the president of the US gets mad, whatever, right? But by relabeling it to strategically important and on paper, China can say, "Well, we're not banning silver. We're not attacking anyone. We're just regulating something important to us." Now, of course, in practice, their rules are written so specifically that almost no one's going to qualify for these licenses. Only very big producers will be able to, and even then, approvals are going to be completely up to their government. And by doing that, it's closing an open market and it starts gatekeeping because China is in the middle of the global silver supply chain. So this strategy gives them a lot more power because remember most silver is not mined on its own. It's produced as a byproduct when companies mine for other metals like lead and zinc. And then if any silver is found that silver has to be processed. It has to be refined and separated. And a huge part of that refining happens inside of China. So even if silver is found in the grounds of Mexico or Australia, there is a very good chance it still passes through Chinese infrastructure before it ever becomes a usable metal. And now starting on January 1st, China will get to decide whether that metal leaves or not. Now, what's interesting about all this is that this isn't even China's first time doing this. Because over the last 10 years or so, China did the exact same thing, but with rare earth elements. Today, China controls roughly 80 to 90% of global rare earth refining. Why rare earths? Because you need rare earths for electric motors, wind turbines, precisiong guided missile weapons, all kinds of advanced electronics. In the early 2010s, China reclassified them as strategic. They started export quotas and licensing rules and the prices went way up and the governments all panicked. And only then did the US, Europe, and Japan realize that rebuilding their own refineries was not a short-term problem. In a lot of cases, it took more than a decade to partially remake non-Chinese supply chains. So, what we're seeing in silver today is the exact same thing that's been happening to all the rare earths, but with one major difference. Silver is not a specialty metal. It's used everywhere. But the problem for the West is because of how silver reacts to pricing. Roughly 70 to 80% of silver's production comes as a byproduct of mining other things like copper, lead, and zinc. That means even if silver prices doubled, the production doesn't automatically increase unless base metal mining goes up as well. We have to mine more of everything else. This makes what economists call inelastic supply. What does that mean? So, think of it like this. If coffee doubled in price today, some people would just start drinking less coffee. That's elastic. It's responsive. But if insulin doubled in price, people would still use it. They still need it regardless. That's inelastic, right? That's rigid. It doesn't move. The demand continues. So, with all of this in context, right, China is setting up a January 1st, 2026 start date for all these export rules. And that's why China's been getting as much silver as possible, getting all the contracts, locking in the supply, while foreign buyers are left exposed to how the markets are reacting, which is what we're seeing today. So, then the question is, what happens now? And I'll be very clear, this is not a silver price prediction video. I don't know where silver is going to be next month, next year, or three years from now. And neither does anyone else. But we can look at what has happened historically because for most of silver's history, it doesn't move much at all. It just kind of sits there for years, sometimes decades, doing absolutely nothing. And then when something changes, silver has a habit of moving very fast. And that's because, remember, silver is needed. and the industries that need them don't have the luxury of waiting it out until the price goes down. And this has happened before several times in history. In the late 1960s and '7s, silver doubled more than once. In 1979 into 1980, it went from roughly $6ish an ounce to over $50 an ounce in just over a year. In other periods, it did nothing for a very long time. That's the nature of silver. Now, this whole story about China and its interest in silver doesn't mean that silver is guaranteed to go up in price. Silver reacts very differently to other financial assets because when stocks get expensive, people can just wait to buy them. When bonds look unattractive, the money could move somewhere else. But when silver becomes harder to find, factories don't stop their production lines and governments don't shut down everything they're doing. So what happens? The price goes way, way up very, very fast. And that's when all the investors and speculators get on board and you see an even bigger price spike. And that part is the speculation part. And after those spikes, silver almost always corrects and goes back down. Not because the world suddenly needs less silver. It's because the speculative money that came in starts to leave because they start to take their gains, sell their silver and move the money somewhere else. And once the leverage and excitement gets flushed out or once people get margin called, prices can go down very fast, which is my very complicated way of saying I have no idea where we are in this journey. Are we in the first phase where the price is catching up to the fundamental reality or are we now in the phase of speculation where YouTubers start making videos about this and this could go way higher before it goes way lower? I don't know. Some people say silver is finally catching up to reality. Some people say be careful buying it here because you're buying at the peak. I don't know. But what we do know is that once a correction happens, that money looks for the next place it thinks the upside hasn't happened yet. Sometimes that's equities, the stock market. Sometimes it's energy. Sometimes it's emerging markets. And in the most recent years, it's been things like Bitcoin and other hard assets. Now, we've had the run in gold. We've had the run in silver, which could keep going. We've had the run in tech, especially AI. And because investors are always looking for the next best thing, that money could eventually leave the silver market and go somewhere else. Now, whether silver goes to $100 or back down to $50 isn't the most interesting thing. The most interesting thing is that this isn't really a story about silver. It's a story about something that is at the crossroads of money, power, industry, energy, technology. And China learned this lesson about silver the hard way almost 100 years ago when it was used against them. And today we're seeing the same lesson but in reverse. Control everything, right? Control the processing, control the exit. And that's what the BRICS countries are trying to do. Build the trust with money again using gold. Decentralized custody of said gold using the gold corridor. And control the materials that the modern world can't live without. That's silver and rare earths. And if you do that, you don't just influence the price of those things. You influence who gets to build, who has to wait, and who has to ask you for money to fund their economy. That's leverage. And leverage is the most important currency in a world that's moving away from cooperation. It's what economists call this multi-olar world. a world where it's not just one country that gets to make all the rules and control the world reserve currency. It's not going to be just the US and silver is sort of like the next small domino in this story. But I'd love to hear your thoughts on what you think will happen to silver's price and where that money might go next. Let me know down in the comments below. As always, I hope you have a wonderful rest of your day. Smash the like button, subscribe if you haven't already. I'd love to see you back here next week and I'll see you soon. Bye-bye.