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China's New Silver Export Controls

China's announcement of silver export restrictions effective January 1, 2026, represents the biggest intervention in precious metals markets since the 2010-2012. The licensing framework was announced via Ministry of Commerce Announcement No. 68 on October 30, 2025. It requires exporters to meet minimum standards of 80 tonnes annual production capacity and $30 million in credit lines. This is very different and much more restrictive than the previous quota system, which emphasized state-trading authorization.

The geopolitical significance is huge. Similar to the situation with rare-earth metals, China refines 60-70 percent of the world's silver despite mining only 13 percent of global output. That means that Beijing has an incredible amount of leverage over global supply chains. Only China has the massive refining infrastructure to serve as the world's processing hub for silver concentrates shipped from mining jurisdictions all over the world, from Mexico, Peru, Bolivia and elsewhere.

The new policy concerning silver mirrors China's prior rare earth strategy. Back in 2010-11, export quota reductions of 40 percent in 2010-2012 drove rare earth prices up 1,000%. If the silver rules do the same with silver, $140 per ounce might end up considered less a pipedream than, simply, a "very reasonable" price that people wished they had purchased at. Because five times $71 per ounce equals over $350 per ounce.

If silver sells for $350 per ounce in 2027, for example, and, perhaps, thanks to central bank buying, gold rose to $6,000 per ounce by then, the ratio between the two would be 17.14 to 1. Historically speaking, the ratio of gold to silver prices, was 15 to 1 at the time of the founding of the USA, and 10 to 1 in Roman times. Silver is approximately 19x more abundant in the Earth's crust than silver. Therefore, a scenario like the one just described, is anything but unprecedented. It is simply be a return to historical valuation. And, in fact, the abundance of silver compared to gold, in the earth's crust

 

Global Supply-Demand Imbalance

The Silver Institute, the industry's authoritative research organization, confirms that the global silver market faces its fifth consecutive year of large deficits, with a projected shortfall ranging from 117.6 to 149 million ounces. The cumulative deficit since 2021 now exceed 796 million ounces. That's equal to almost one full year of global mine production. We are not seeing a mere temporary supply/demand imbalance. This is a structural condition that arises out of years of mispricing and the resulting characteristics of the silver supply.

Because COMEX and other paper trading has allowed people to buy what they view as "silver," in the form of futures contracts, where 99 ounces of claims exist for every 1 physical ounce in a bank vault, the price of silver has been kept artificially low. Accordingly, it has not been economically feasible to spend billions of dollars to operate primary silver mines, unless the ore is unusually and extraordinarily high in silver content.

Approximately 70-80 percent of silver production comes as a byproduct from copper, lead, zinc, and gold mining operations. Only 25-30 percent comes from primary silver mines. This reality creates what economists call "supply inelasticity." In other words, the supply cannot respond normally to price signals. Whether silver prices go up or down, approximately the same amount of silver will be produced every year. For example, even when silver prices doubled and tripled in 2025, mine operators did not substantially increase silver production. The amount of silver that came from those mines was still based on the economics of primary metals (copper, lead, zinc), not the silver content.

 

Industrial Demand Is Accelerating

Silver's application across critical industries creates a demand floor that is, similarly, also price-inelastic. The Silver Institute projects industrial demand will expand across solar photovoltaics, electric vehicles, and AI data centers through 2030. Solar applications, which consumed only 5 percent of global silver demand in 2014, grew over 25 percent in 2024, with next-generation "TOPCon" solar technologies requiring up to 50 percent more silver per unit. Solar applications now create about 14% of silver demand.

Electric vehicles present an even bigger and faster-growing element of demand. Battery-electric vehicles consume approximately 25-50 grams of silver per unit. That's about 67-79 percent more than internal combustion vehicles. The Silver Institute forecasts global automotive silver demand will grow at a 3.4 percent compound annual growth rate through 2031, with EV vehicles overtaking internal combustion vehicles as the primary automotive demand source by 2027 and accounting for 59 percent by 2031.

Silver is only used where it is critical, even in battery-electric vehicles. That's because of its cost. But, where it is used, it MUST be used. Its use is not discretionary. If it were, they would already be substituting much cheaper copper. Silver's superior electrical and thermal conductivity mean it is irreplaceable in certain applications. Copper can do part of the job. But other things can only be done by silver. Again, it is NOT discretionary. Battery-electric vehicle producers MUST buy a set amount of silver, regardless of cost.

Electronics and semiconductors currently account for the largest industrial use, with 20 percent year-over-year growth documented in 2023. With the current AI buildout, although I could not find exact figures for 2025, I have no doubt that the increase is far greater now.

Industrial applications now represent 59 percent of total global silver demand, up from 50 percent a decade ago, fundamentally altering the metal's demand profile toward less price-sensitive, technology-driven sectors.

 

Physical Market Tightness

The physical silver market is sending multiple signals, indicating a level of extreme scarcity that has been unmatched in history. LBMA data shows inventories at 711 million ounces as of April 2025. That is the lowest level in modern recordkeeping and nearly 400 million ounces below 2021 peaks. More critically, the so-called "free float" silver available for trading has contracted to approximately 200 million ounces, down 75 percent from 850 million ounces in mid-2019.

Silver Lease Rates

The most dramatic indicator of physical scarcity is the unprecedented spike in silver lease rates throughout 2025. Silver lease rates, meaning the cost of borrowing physical metal, are one of the most reliable indicators of genuine physical tightness. Under normal market conditions, silver loan rates hover between 0.2-1.0 percent, almost always much closer to the 0.2% than to the 1% mark.

In October 2025, one-month lease rates spiked to 39 percent!  This was an extraordinary level signaling panic and acute scarcity. According to Bruce Ikemizu, Chief Director of the Japan Bullion Market Association, the 39.2 percent London lease rate on October 9, 2025, reflected the unwillingness of physical silver holders to lend out their metal. These silver leasing rates are  the highest that have EVER been recorded in known history.

Even as lease rates retreated from their October peaks to 5.6 percent by late October, they remained dramatically elevated compared to historical norms. Most likely, some holder of large quantities of silver bullion decided to loan its silver to cap the lease rate and stabilize prices. But, eventually, all the silver that was lent out will have to be repaid in kind. That will lead to another episode of severe market tightness.

Throughout 2025, we have seen lease rates spike five separate times, with rates reaching 19 percent, then 30 percent, and ultimately 35-39 percent during the October squeeze. This persistent elevation, even during periods of supposed normalization, indicates that this is a case of structural rather than temporary scarcity.

Backwardation is a market condition in which precious metals spot prices trade above the paper futures price. That happened in a big way in October 2025, in concert with the elevated lease rates. Backwardation implies an immediate supply problem. People are willing to pay a substantial premium to get silver now, rather than waiting. COMEX warehouse inventories experienced their largest single-day withdrawal in four years during October 2025. That confirmed the physical metal depletion.

Such conditions collectively signal that the market is drawing down above-ground inventories to satisfy demand, a pattern that cannot persist indefinitely.

 

COMEX Margin Shenanigans

Timeline and History of Margin Increases in 2025

The CME Group executed two major silver futures margin increases in December 2025, both announced via official advisory notices.

December 12, 2025: The CME raised initial margin requirements for front-month silver futures contracts by approximately 10 percent. This triggered immediate forced liquidations, with 13,430 contracts sold in 15 minutes, causing silver prices to fall $2-3 per ounce despite unchanged physical fundamentals.

December 26, 2025: The CME followed up by announcing advisory notice 25-393, effective December 29, 2025, which was the second big margin increase within two weeks. For the standard 5,000-ounce silver contract, non-HRP margin rose from $22,000 to $25,000, representing a $3,000 increase. This brought the total margin increase from early December (approximately $20,000) to end-December 2025 ($25,000+), an increase of 25 percent in three weeks.

The CME justified the increases using its standard language citing "normal review of market volatility to ensure adequate collateral coverage." But, historically, the CME implemented similar interventions in 1980 during the Hunt Brothers' silver manipulation attempt and in 2011 when silver prices peaked.

This time, the situation is very different. The Hunt Brothers tried to manipulate the market by creating artificial tightness, and short sellers and the exchange were able to stop them. Their strategy was outmaneuvered by the opposition. In 2011, there were no structural shortages of physical silver. Just a wild eagerness on the part of investors and speculators to "get onboard."

Today’s market conditions reflect a genuine shortage of physical silver against rising demand. No amount of trading in the paper silver market can resolve a real physical shortage. While the CME can temporarily suppress prices, as we saw at the end of December, those lower prices would only hold if silver producers had no other option than to sell to those who control CME. Right now, producers can easily find industrial buyers willing to pay significantly more than the futures market price simply to obtain immediate delivery of physical metal.

 

Why the COMEX Margin Calls Were Temporarily So Effective

Margin increases function as a mechanism to force automated liquidation of leveraged positions. When margins rise, traders holding large leveraged long positions must post additional capital. Otherwise, their positions are automatically liquidated. Year-end 2025 amplified this effect due to Section 1256 contract taxation. Under IRS regulations, all futures contracts classified as Section 1256 contracts must be "marked to market" on December 31, triggering immediate tax recognition of unrealized gains. 

The favorable tax treatment of Section 1256 contracts (60 percent long-term capital gains, 40 percent short-term) incentivizes position closure before December 31 to achieve tax savings. The exchange gamed the combination of year-end tax selling with its margin increases to create overwhelming downward pressure on paper prices.

Thanks to the actions of the CME, from December 28-29, 2025, silver futures fell 8-11 percent intraday after the margin increase announcement, yet the spot price recovered to $75.99 by December 30, demonstrating the paper-physical disconnect. Then, by the New Year, they fell again, into the $71 per ounce range. 

None of what the CME accomplished relieves the very real tight physical market conditions. It is only cosmetic. It may serve to temporarily reduce, at least for a few days, the number of speculators jumping in, to "get rich quick" in silver speculation, but it will not halt the long term upward trajectory.

 

Historical Precedent: Rare Earths (2010-2012)

The 2010-2012 rare earth markets provide an excellent analogy to what is happening now in silver. China controlled over 90 percent of rare earth production and processing, implemented export quotas. In 2010, China unexpectedly cut rare earth export quotas by 40 percent, initially claiming an environmental protection rationale.

The market response was dramatic. Rare earth prices spiked nearly 1,000+% from 2010 to 2012. Unlike the smooth, continuous rise that might result from speculative buying, prices exhibited volatile spikes followed by corrections as futures markets responded to intervention, similar to the ones the CME has now attempted in silver, before resuming higher trends as the structural reality of supply constraints reasserted itself.

The silver market is now replicating this pattern. Margin increases create temporary price reversals that confuse casual observers. However, each reversal is followed by renewed upward pressure because the underlying supply-demand imbalance cannot be undone by actions taken in paper futures markets. China's control over refined silver control mirrors its rare earth dominance, suggesting similar, perhaps, slightly lower (I've used 500%) long-term price appreciation trajectories.

 

Why Silver Prices Will Rise Regardless of Intervention

Fundamental Constraint: Supply Cannot Respond

The critical insight distinguishing silver from most commodities is the immobility of supply relative to demand. Unlike crude oil, copper, or other base metals where higher prices stimulate exploration and development within 3-5 years, unless its price skyrockets as I predict it will, silver's byproduct nature creates a structural lag in meeting supply shortages.

Mine operators making capital allocation decisions will ask: "Should we expand our copper mine to produce more copper?" That answer depends on copper prices, not silver prices. Copper is also in demand, so it is likely that copper production will, in fact, increase. It is just a matter of degree. The shortage of silver is far more intense than the shortage of copper. But, silver is nothing more than an accounting credit, a byproduct revenue. It is currently too cheap to drive an independent investment decision on the part of a mine operator. Even if silver prices doubled again, it would not be enough to change this dynamic.

And, aside from that, new primary silver mine development requires 7-10 years of permitting, environmental review, and capital investment before first production occurs.

Recycling has not covered the deficits despite higher prices. Above-ground secondary recovery simply cannot scale upwards fast enough to offset 150+ million ounce annual deficits. The mathematics cannot be denied: if demand grows 5-10 percent annually while primary supply grows 1-2 percent, deficits will grow on a compounded basis. After five consecutive years of severe deficits, available above-ground silver inventory has contracted to a crisis level.

 

Industrial Demand Will Not Reverse

When solar installations require silver, photovoltaic manufacturers cannot substitute cheaper materials at the margin of manufacturing. The electrical properties of silver are non-negotiable for the particular performance specifications it is used for.

This means that there is a minimum demand floor. Even if silver prices reached $350/oz, the total cost impact on a solar installation (where silver represents 3-5 percent of panel cost) or an EV (where silver represents less than 1 percent of vehicle cost) would remain manageable even though industrial users would, of course, like it to be cheaper. And, of course, those same industrial users are willing to procure it in a manner that prioritizes supply security over marginal cost optimization. In other words, if CME has managed, via manipulatively timed margin calls, to reduce prices on COMEX (and therefore the "official price" as reported by the news media), but large quantities of metal are not actually immediately available, industrial users will buy from suppliers who actually have metal, even if it costs considerably more. 

Above-Ground Inventory Depletion Irreversible

The cumulative 796 million ounce supply deficit since 2021 reflects actual drawdowns of above-ground inventory held in exchange warehouses, bank vaults, and ETF custodial accounts. Each year's deficit directly reduces available supply for the subsequent year. Unlike commodity markets where production can increase to offset demand surges, silver's depletion is a one-directional process.

 

Geopolitical Risk Premium

China's export controls have now added a "resource nationalism" premium to silver. As nations recognize silver as a critical mineral for energy transition (the U.S. Geological Survey officially designated silver as a critical mineral), governments will implement strategic stockpiling, export restrictions, and domestic processing mandates.

The EU, U.S., and allied nations will intensify efforts to develop domestic refining capacity and secure supply chains through bilateral agreements with primary producing nations. These strategic moves will further reduce the tradable global silver supply.

 

Conclusion

China's export controls, five-year cumulative deficits exceeding 796 million ounces, structural supply inelasticity, accelerating industrial demand, dramatically elevated lease rates, and depleted above-ground inventories create conditions under which silver prices will rise regardless of episodic margin interventions by COMEX. Year-end 2025 margin increases forced technical liquidations of leveraged positions, creating temporary price relief that will prove ephemeral as the fundamental supply-demand imbalance reasserts itself.

Silver faces strong demand fundamentals (renewable energy and electrification), acute physical depletion, and now active geopolitical resource nationalism. Unless global mine production accelerates dramatically (which is a 7-10 year prospect), or global demand contracts by 20-30 percent (unlikely given renewable energy deployment), silver prices will test $100-150/oz and, possibly, higher, by 2027.

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