Alasdair MacLeod: China BROKE the SILVER market

I can see the gold silver ratio falling below 30, maybe even falling below 20. This squeeze could really be absolutely enor greater than anything we've ever seen. China is no longer suppressing the price of silver. It has given up doing that. It's been suppressing the price of silver for a long time. From January, it's been announced by the Chinese authorities that they're tightening up on licensing for exports of silver. We now have a situation where the suppression is ending and consequently prices are going off the charts. >> Welcome to the microscopic podcast presented by Gold Republic. My name is Alexov and in this format I invite you to look at the world through different lenses to see what's hidden in plain sight. But before I start, I'd like you to know that if you open an account at Gold Republic, you will receive one free gram of gold. Just click on the link in the description. Well, today I have the pleasure of welcoming right after the Christmas period, uh, Alistister Mclod, welcome back to the podcast. >> It's my pleasure. Thank you for having me. >> So, as we just said, it's been quite some time. It's been um a very good timing for precious metals investors in the in the recent weeks. It's it's felt like Christmas pretty much every day of the month. Uh I would say maybe in 2025 in in general. Um so today I want to obviously speak about this but I also want to start maybe with the bond market and uh the outlook for 2026. We've talked about this already I think a few times in a past interviews this year and as things progress we can see how um things start to really break especially in the case of Japan. You've also talked about this a lot especially in your recent piece. So what would be for you the singles the single cleanest signal that Japan's bond problem is transmitting into the USS right now? So if we think about for example hedged yield uh pickup collapsing of maybe FX basis um what is happening? >> Well um it's it's clear that the Bank of Japan is raising rates. I mean it's got to it's it's as simple as that. And uh this obviously undermines the carry trade. Um the carry trade is only just part of it though because the other part of it is uh Japanese institutions, you know, pension funds, insurance companies um going for the yield pickup uh over their own domestic bond markets by investing in US treasuries. And Japan is now the largest single category of US Treasury holder. And so as the differential closes down, in other words, as bond yields start rising in Japan and we've already got the 10 year which has gone from negative up to currently um significantly over 2%. um that I think is going to continue and I think it will mean that Japanese institutions are not going to first of all I I think that their the pace of their investing in US treasuries will diminish and I think they will actually turn sellers at some stage. I would expect that um maybe in the not too distant future. Um the uh you know the the problem that Japan has is that they just cannot stop being Keynesian. They uh I mean the first thing the new prime minister did was announce a new reflation package. I mean, come on. You know that they're just sort of um determined on destroying their own bond market and that that is going to work through. And I think I think um the only thing that's keeping yields at current levels um is basically uh confidence if you like overall global confidence uh that these yields are not going to rise too much more. I can't see anything to stop rising. I mean, if you get a situation where um uh uh you know, the you know, the the global bond scene begins to look sort of more ugly, then I I think you could well see uh the 10-year uh yield uh JGP yield rising um you know, certainly above three, above four, maybe 5%. I can't see what really stop it once it really starts going. So, um I mean the the merit that Japan has is it's um got a reasonably high savings rate. I mean, Mrs. Watonabi, we used to call the Japanese saver sort of 40 years ago, um you know, she would just tuck away her excess um money into into the post office. um and these savings accounts were tax-free and um so that habit is still there and that's about the only thing actually which allows uh the Japanese to suppress interest rates below where they should reasonably be. So so I can see that I can see that changing and of course the the impact on America is likely to be very substantial. I mean for a start you've got the carried trade uh uh arithmetic beginning to work against it and on top of that uh you've got Japanese institutions who are going to be less keen to to buy US treasuries and of course that has an impact on on um uh uh the yields in US treasuries. It has an impact on uh the dollar's value if you like against other currencies. Um but I think the principle thing is that once uh this works through and starts pushing up US bond yields then uh the equity bubble I think will burst. I mean the the yield disparity is already the highest on record. And what I mean by that is the difference between the returns on uh you know the if you like the the uh the real returns in terms of earnings and all the rest of it on equities um are far far below uh the return by investing in uh along US Treasury and if the US Treasury yields are rising then that's going to just kill the equity market and I think that's going to be the an event I think we're going to see in the first quarter of um of 2026. >> So that's a good point to make here. And before we dive into that, maybe I um one last question about then other G7 countries and notably Germany, France also lately. We talked also about the UK uh a few months ago. Um how does that look like into the the coming months? Well, um we we've already seen if you look at the yield on the long uh uh German bond that is going into new high ground in exactly the same way as the yields on the Japanese uh JGBs are going into new high ground. Um so these low yielding bond markets are beginning to no longer be low yielding. Um and I think um so you know if we look at um look at it in G7 terms I mean that's Japan Germany and France the UK um the only reason that sterling is where it is is that hedge funds have been buying guilts uh because of their superior yield but at some stage these hedge funds are going to turn around and realize instead of looking at the greed side of the return in guilt compared with you know again it's carry trade really I suppose compared with the EU uh with the with with the euro um you know they're going to suddenly see risk and I think sterling at that point will probably collapse and I would not be surprised to see uh uh our guilt yields at the long end going well over 10%. And of course, I mean, this is this is effectively uh a financial value implosion. Uh and uh it's impossible to see if if I'm right in this, it's impossible to see how equity values will be maintained. Um so you've got the potential for a crash. And um the thing that's driving it, Alex, of course, is the debt bubble. And on the other side of the debt bubble is credit. The problem we have is that increasingly credit has been created by the banking system to um invest in financial assets predominantly equities. I mean this is particularly noticeable in the US and uh the problem there is that uh once the debt bubble um runs into trouble uh you know with higher bond yields then you know you you've got the situation which is again 1929 you know we've had the uh you know the roaring 20s so far both 1920s 1926 to 1929 and this time really from about uh uh 2020 23 to current day and that's going to be followed by the crash. Um this is far greater the the the equity um valuation disparity is far greater this time with far more credit in terms relative to GDP driving equity values than in 1929. And on top of that, 1929, we had the Smoot Holy Tariff Act, which was being discussed in Congress in 1929, enacted in 1930. And we've got Trump's tariffs, which actually are worse in the sense that not only are they putting up um uh prices uh for domestic US consumers, but the other thing that his tariffs are doing is just creating huge uncertainty because nobody knows what the tariffs actually are. you know, he's he says they're one thing and then next minute he changes his mind, you know, like he doesn't like you, so he's going to double the tariffs. I mean, this is actually a great disincentive to international trade. So, we're setting ourselves up, I think, for a very, very violent 2026. Yeah. And you've also alluded to that now, uh, talking about the valuation gap between equities and the long bonds, which is, as you described, the largest in history. Um if yields rise let's say another 50 to 100 basis point what would break first? Would it be uh passive equity flows? Would it be credit spreads? Bank balance sheets. >> Good question. I think all of the all of the the above. I mean I think I I I can't see that it matters which breaks first really. Um but I think what we're likely to see is uh um you know rising yields will start uh if you like making everybody aware of currency risk. Uh and I think you know gold going up through 5,000 I think would probably be um as good an indicator as any. I mean the fact that gold has actually risen in recent months very very strongly does tell us that gold is uh front running a deteriorating situation for fiat currencies led by the dollar. So further rises in the gold price I think it sort of confirms it and uh what this means is that the great u problem in 26 and 27 which nobody really expects at the moment is soaring inflation inflation prices will be rising very very sharply because the purchasing power of the currencies is going down and of course this isn't in the lexicon of the FOMC uh in in the states I mean you read their statements They hardly ever refer to the quantity of money, the changes in the quantity of money or indeed um the faith in in in uh u in the dollar that's hardly ever mentioned but it's over by foreigners and uh as these u events uh uh you know unfold I think you'll find that there's going to be massive liquidation of um you know sort of crossber investments. U if you look at the foreign interest in u uh the US equity market is over $20 trillion at the moment. 20 trillion. When that market starts going south, they're going to get the hell out of it. Um that there is no doubt. I mean, if you look at um any relationship between foreign investment uh and markets in the past, they love it when things are going up, but as soon as things start going down, do they sell their own stuff? No. They hang on to their own stuff and they sell the foreign stuff because the foreign stuff is basically speculation. That'll go 20 trillion dollars overhanging the market. Now, I don't think the foreigners will get out with more than 10. Actually, I think they probably get out with probably less than five. Uh, if the market really does crash, um, but, um, you know, okay, what happens then? The answer basically is that not only does the dollar going down because if you sell your equities, you're going to sell the dollar as well. And it's worth noting incidentally that American uh uh investment in foreign uh stocks, foreign equities is either in dollars or it's in ADRs which are dollars. So there isn't a you know uh American institutions withdrawing from global investment will not undermine other currencies but it's the uh getting out of US investments by foreigners which will determine currency rates and in order to stabilize the situation the Fed will be in the position where it has no option but to accelerate QE. it will be in there. Not only buying US treasuries, not only buying uh um agency debt, not only buying corporate debt, you know, because the refinancing costs for zombie companies have just basically put them out of business. So that's got to be supported, but also I would not be surprised to see them buying into uh equity ETFs like the Bank of Japan has been doing. So the uh you know this is going to dilute the purchasing power of of the dollar even further. I mean, I think there's u we're looking really at the end of the fiat currency era, I reckon, Alex. And I think that's um that basically means that unless someone does something about it, you know, your currency goes to zero. But the problem is, as we saw with Germany in 1920 to 23 is it's not economic rationale or common sense if you like or anything like that that determines monetary policy. No, it's politics. Politics, politics, politics. And the politics of it are really quite simple. You cannot do anything to stop the slide in the currencies. And indeed, if anything, your policies make it worse because the one thing I would see in 26 and certainly in 27 is the introduction of price controls. Now, every politician knows that price controls actually are counterproductive. But does it stop introducing it? No, they will introduce price controls. >> Clear. And I think with that as well an increase of maybe um fiscal policies and in that sense uh more taxes because all that >> deficit needs to also be financed and you see that already happening in in France with now taxes introduced for people for French people living abroad and not being even in the country and using the services. UK same thing. The Netherlands as well. So there's a lot of that already like the the tell tell signs >> um about this coming. Um so my next uh question would be more related to obviously the the wow the merry precious metal feast that we've had in the last weeks. Um what have been the biggest drivers of this monumental silver and platinum spike? uh you recently debunked in the newsletter the links between the Fed repos and uh bank bailouts. Can you maybe elaborate why non US billion banks are most vulnerable in silver and platinum? Well, um I had a look at the um December bank participation report and there are five US banks basically uh in that report and if you look at their position in silver their net long silver now we're talking derivatives we're not talking about physical um the shortage the bare position uh is actually in the foreign banks or what they call non US banks which tells us that Um I mean these banks what they tend to do and we need to understand this a little bit. What they tend to do is to run long positions in London and short positions on COMX. So in a sense it's not too surprising to see um that foreign banks are actually short on Comx. That's understandable. The problem we have to understand is that we're talking about derivatives. Now the derivative market in terms of its size is many many multiples of what is actually delivered. Further problem we have is that China is no longer suppressing the price of silver. It has given up doing that. It's been suppressing the price of silver for a long time. China is the second largest nation by mine output. Not only that but she imports masses of silver dory and also uh other uh metallic ores where silver if you like is refined out from that. So silver in terms of um global supply, silver is by far the largest entity when you take both mine output and also refinery output into account. From January, um it's been announced by the Chinese authorities that they're tightening up on licensing uh for exports of silver. And what basically the principle behind it is to stop um excessive amounts of silver going out of China. They're not stopping it totally but it will be restricted. Now this comes at a time when demand for silver is going off the charts. Not just photovoltaic cells, not just India which incidentally uh has been subsidizing uh um uh photovoltaic cell production at the government level. So Reliance Industries for example, one of the very very big conglomerates. Um I mean they they they're building huge huge great solar farms and they're in the business of manufacturing this stuff big time. So they're going into the markets to get the silver which they need for these photovoltaic cells. But the other thing which um is driving it is electric vehicles and uh the um increase in range and so on so forth comes really from greater use of silver um in in batteries and Samsung have come up with a a silver carbon battery which gives you something like 900 miles you know over 1,000 km uh range um and uh it takes something like um 10 to 15 minutes to charge that's all. Uh so this is something which is being introduced I I understand for um uh the more expensive luxury vehicles EVs um in 2026 and will be spread out from there. Now the problem is that if you just have 20% of EVs having these Samsung batteries, then that's the equivalent of total mind supply of about 25,000 tons a year silver because one of these batteries uses a kilogram of silver compared with um uh uh you know the sort of conventional um uh lithium batteries taking about four or five grams. So the demand for silver is going up very very substantially. The reason that we've got this problem is that suddenly everybody in um in the industry if you like uh you know need silver they've got to go and buy it. So they're actually raiding the markets. They're going into London and uh buying Ford contracts and standing for delivery. They've been doing this on Comx more visibly. Stand for deliveries this year so far are about 15,000 tons. So Comx is um I mean part we don't know the number in London quite so much, but Comx is the largest silver mine in the world effectively. It's the largest source of silver. So um you know by a long long chalk I mean if you're looking it's it's I worked it out something like 58% um of mine production is actually being stood for delivery on coax this is just staggering so it's not surprising that the price of silver is going through the roof I mean the other point worth making uh Alex is that um you know we we we tend to look at these things as investors in regulated investments. Now if the price of you know let's say Microsoft or Nvidia or whatever uh goes up um then we know that it will rise to the point where sellers come in because you got buyers and sellers there the whole time. They're not all the same way. Okay, they like to rise, you know, ride a rising market and more buyers will come in on the rising market, but at some stage you will find that sellers will take profits and so there will come in some supply. Price rises to the point where supply comes in. This is not happening with commodities for the very simple reason that you don't have that debt if you like of investor interest. These are nonregulated investments. They're not in the investment pool at all. is purely industrial. So any hedging that you know is from industrial sources. So if you look at mines for example um you know traditionally they've been the ones that hedge uh production because you know they got the bills to pay and all the rest of it and if they get a price for silver they don't want to find that um the silver which they extract over the next quarter buys less than it does today. So they would hedge their production. What do they do now? I mean, they got no interest in doing that. Doesn't make any sense. They see what what's what's happening. They know that China has stopped supplying the West. They know that prices are going higher. So, what do we do? You know, fine. No, I not hedge my I just got to ride it. I mean, why not? And not only that, but now we are actually profitable at these levels and consequently, we don't need to hedge future production. So this throws the emphasis back on the swaps, the bullion bank trading desks in order to try and keep if you like keep the price down or um to take profits if but if they're if they happen to be net long but you know they don't want to get into the situation where they're even more short because basically they are short on Kovac and the problem in London is they may well be long on London but people are standing for delivery and as they stand for delivery They reduce the amount if you like of outstanding contracts because someone standing for delivery uh you know who um has bought in other words uh let's say a bullion bank has sold um uh uh you know forward delivery of a million ounces or whatever they will have covered themselves on the other side. So equally um you know someone who is long will find that um you know really uh you know the market is contracting on him and he can't cash it in. He can't cash it in. He won't find a buyer for his uh uh um long position because the entire market is contracting. The entire derivative market is contracting. So this lack of liquidity is really what's driving the whole situation. And um I think that uh the fallout from the Chinese situation is only just started. It really has. It's um it's an unusual event. Uh but um it does happen from time to time. And I think the other thing behind it is that um you know decades of of um fiat currencies have distorted the entire commodity scene so much. It's had the effect of driving commodity prices down in real terms while they appear to be rising in dollar terms. It's because the dollar is not rising fast enough. uh sorry the dollar price isn't rising fast enough to account for the depreciation of the dollar. Consequently um you know if you look at copper in particular which is another must-have metal for the same reasons as silver um the price measured in gold is roughly 18% of where it should be on terms in terms of long-term value. So that means that um even priced in gold, copper is likely to increase by four or five times. So what does that do to the price of copper in dollars? Well, through the roof. And as the markets begin to understand this, the supply of copper is going to dim into into markets is going to diminish. We've already got um a battle royal between America and China over the Democratic um uh Republic of Congo and also in Zambia, you know, which is the major major copper producing um uh center in Africa. So, and China, I understand, is the largest refiner of copper. you know, China puts that on the restricted list that I think it's going to be uh people will wake up. 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So yeah, one could say that's the innings of the first, let's say, actually real geopolitical resource war uh between those big countries and that all of the things that the Trump administ administration in particular has been preparing or announced with the strategical minerals uh reserve act and these kind of things um have been just uh a preparation to that. Um so but I I want to maybe conclude with that then uh at the end of our conversation but first I would like to know um about what you think about the current CME um futures margins that rose about 4% of notional so that was about 25 uh uh uh times leverage that was in 2011 uh to around 10% which was about 10% uh 10x leverage over just a few weeks um which then triggered uh uh cascade of liquidations uh among speculators and ended the price rally and today margins are already approximately at 17% in notion of value so about six times the leverage uh which is tighter than the worst parts of 2011. So now I'm I'm wondering because I've also read an article about this by Anthony Campbell that arcs that further margin hikes from here wouldn't flush out speculative positions due to the limited leverage left but would instead impact hedges like producers and refiners who rely on the market for risk management potentially leading to reduced liquidity wider spreads and commercial activity shifting OTC markets. So that's what he wrote. Um, so I was thinking or I was wondering what do you think of the current situation if it's fundamentally different than 2011 and have the mechanics indeed flipped uh this way or not? >> Well, I I mean uh you know the comx margin requirements I think uh do make a lot of sense if they increase them in this uh environment. Um and I would expect them to continue to increase them. Uh and yes it does actually affect things because um it's not just um uh uh you know the longs if you like but it's also the shorts. So uh you find that the shorts get squeezed uh in this environment. I mean this is a the silver market is one where there is actually very very low participation by speculators. Just look at the open interest. It's around about 150,000 contracts. Um, I would say that the normal level is probably around about 170,000 contracts as an average over time, maybe a little lower than that. But this is not, you know, a market which is driven by speculation at all. So when the margin requirements are increased, it doesn't hit the speculators so much. It hits the establishment. So uh, you know, I yeah, I mean it it hurts the bullion bank traders, the swaps, that category in particular. Um I think as it's an interesting point that it's a further discouragement to uh um uh to to uh miners uh hedging. Um I can understand that. I think as far as industry is concerned they don't care too much about this because they're in there buying silver basically by standing stand for delivery. Um that's really their interest. Um yeah but it's all part of this tightening up the market. I mean there was someone who put out a thing the other day uh um about how um uh you know the increase in in in u margin requirements on comics was hitting the big US banks and consequently the Fed had to step in with repos of around about 17 trillion sorry 17 billion not trillion 17 billion now um actually if you looked at the numbers I mean there complete nonsense Um because it's not the banks who are short, they are actually long of silver derivatives. It's the non US banks uh the 17 non US banks which are short and of course they're long in London. So I mean and you know the Fed uh uh this was on uh Christmas Eve. Uh the Fed uh producing um uh you know repo intervening in the repo market. I mean the reason they intervene in the repo market is basically to hold the rates within their target range and we've got a year end um you've got all sorts of factors which might mean that banks uh need um overnight finance to ensure that their books are are square. It's not just silver for goodness sake it's you know it could be everything could be interest rate swaps I don't know you know whatever bond positions and so on. So, and also bond failures too. This is the other thing. Fails to delivery deliver apparently they they've risen quite significantly. So, um I think the point about uh uh increased margin requirements uh on on on futures um and options I think um we must expect that with this volatility. It's not a bad thing. Comx has to do it in order to protect itself because um Comx is standing there taking the counterparty risk for everyone for everyone. So it's got to manage this properly. It's not like an over-the-counter market like in London. Um you know the LBMA market is is over the counter where it's principle to principle. So you got counterparty risk is a big big issue. um it's not an issue for people trading on COMX unless of course the widespread defaults and and Comx takes it on the chin and COMX has to somehow fund it and all the rest of it. That is actually what the you know uh um the great taking is all about. How uh you know COMX will will have available if you like all the collateral it needs in the form of um uh you know ETF uh uh shares um in this case uh uh which are owned by the um DTC. So uh you know that is something which can be uh dealt with. So I think yeah we're going to see more and more margin increases. I think I mean until the volatility declines if it does decline so I to my mind it's not an issue we should expect it. So now if we look at also the price action of platinum um it spiked tremendously and a lot of platinum investors have been kind of prepared for the setup for a couple of months at least. I know that there's been a lot of chatter about that and now it's finally paying off. >> Um often gold leads and then silver follows and some would even say then platinum follows. Would you then say that this is then um the beginning of like even bigger price appreciation? Have we maybe just stop topped in into this kind of sequence or where do you see prices going from here? >> Yeah, I mean it basically um you know it's even less liquid than silver. Uh and so you can get the thing mispriced hugely. I mean bear in mind that with all these commodities um uh you know people buy and sell them. I mean you know uh uh mines and industrial users and governments and so on so forth without going through the market. they just refer to the market which is why they quite like to use derivatives to control the price because if you can suppress the price and then you're going to take delivery of say 50 million ounces of something um uh then you know that it suits you to to suppress the price. I mean this is really the one of the ways in which derivatives are being used. So consequently the price can go quite a drift from the real supply and demand factors in any particular uh metal and I think this is particularly the case with platinum and palladium. I mean just amazing how volatile they have been. But now of course they're getting caught in the squeeze and I would say as a general background uh base metals are wildly undervalued because of the distortions from um a collapsing uh value of the dollar. And so they're all prone to this problem one way and another. And I think what we're seeing is platinum and palladium and silver are the standout um uh issues if you like currently uh in financial market. >> So what is your outlook now for 2026? Uh do you expect this run overall in Persian metals to continue? So are we mid peak? Are we where are we at in the cycle? I mean gold gold basically is uh telling us quite clearly that the purchasing power of the dollar is not only declining but it's going to continue to decline which means that gold will continue to rise. Uh silver is telling us that um and also platinum group metals uh is telling us that um they have been suppressed. We now have a situation where the suppression is ending and consequently prices are going off the charts and they will continue to do so until I don't know when. I mean basically um I can see the gold silver ratio falling below 30 maybe even falling below 20. I mean this is this this this squeeze could really be absolutely enor I mean just greater than anything we've ever seen. Um I expect bond yields to rise next year. Um you know the ending of the carry trade and also the reversal of global flows out of uh low yielding u major currencies into higher yielding uh major currencies. I think that's going to be a f factor and I think as that happens the equity bubble the debt come equity bubble will uh collapse to implode uh and um I expect QE to just take off because what alternative does the Fed have so all this in 26 tells me that we're going to see inflation unexpectedly rise very significant and leave the post um COVID inflation spike, leave it in the dust. I think it's going to be a lot worse than that. Uh and of course, this will push bond deals even higher. It will push the price of gold even higher in these collapsing currencies. I just see it as really all symptomatic of the end of the fiat currency era which has been running now for 54 years. All right, on this note, Alistister, um, thank you. Thank you for your time, for your precious knowledge that you've been sharing and warning investors for many, many years, and now it's coming to fruition. I think many people appreciate that. Uh, obviously for those who don't know, but I guess it's not a very big part of the audience here. Alistister has a newsletter on Substack that you can follow, and he's also very active on X. So I thank you again. >> That's my pleasure, Alex. Thank you for having me. >> Have a great day. >> And you Hey, hey, hey.