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Silver’s rally in 2025 has been extraordinary and multi-faceted, but as veteran analysts such as Alexander Campbell warn, several near-term risks could trigger a meaningful retraction before longer-term thesis resumes dominance. Key among risks is leverage being squeezed by regulatory tightening, policy supply constraints emanating from China, and cyclical pressures such as tax-motivated sales and currency strength. Below, I unpack what’s happening, what it means for strategies, and what remains uncertain.
1. Margin Hikes and Leverage Deleveraging
On December 29, the CME raised margins on silver futures—particularly the March 2026 contract—from ~$22,000 to ~$25,000 per contract (roughly a 14-% hike) to reflect volatility. ([m.economictimes.com](https://m.economictimes.com/markets/commodities/comex-silver-sinks-11-mcx-falls-8-intraday-as-cme-margin-hike-knocks-white-metal-prices/articleshow/126229913.cms?utmsource=openai)) This action materially increased the cost for speculators and leveraged participants, causing a sharp ~8-11% decline in silver futures and prompting profit-taking. ([m.economictimes.com](https://m.economictimes.com/markets/commodities/comex-silver-sinks-11-mcx-falls-8-intraday-as-cme-margin-hike-knocks-white-metal-prices/articleshow/126229913.cms?utmsource=openai)) In highly leveraged rallies such as this year’s, margin hikes often mark inflection points, especially with weakening sentiment or stretched valuations. The “overbought” label being attached to silver also heightens the risk of a correction. ([marketwatch.com](https://www.marketwatch.com/story/this-hedge-fund-veteran-who-pushed-for-silver-in-february-now-warns-of-short-term-risks-41238ceb?utmsource=openai))
2. China’s Export Licensing Regime: A Supply Shock Looms
Starting January 1, 2026, China is implementing a new licensing regime for refined silver exports, limiting exports to MOFCOM-approved firms. ([tradingeconomics.com](https://tradingeconomics.com/china/exports/news/513518?utmsource=openai)) Only 44 companies will be licensed for 2026–2027, tightening supply dramatically; estimates are that 60–70% of globally traded refined silver will now require government permission to be exported. ([businesstoday.in](https://www.businesstoday.in/personal-finance/investment/story/silver-shock-china-to-tighten-silver-exports-from-jan-1-as-prices-hit-record-highs-what-lies-ahead-508858-2025-12-31?utmsource=openai)) Because much silver supply globally is tied up in industrial byproducts rather than primary silver mining, supply cannot quickly respond to price hikes, increasing short-term risk. ([marketwatch.com](https://www.marketwatch.com/story/china-launches-its-silver-weapon-on-jan-1-heres-what-that-means-for-prices-5c543123?utmsource=openai))
3. Physical vs. Paper Market Divergence
Campbell observes that physical silver valued in locations such as Dubai (~$91/oz) and Shanghai (~$85/oz) trade significantly above COMEX futures (~$75/oz), implying paper instruments may understate scarcity. ([marketwatch.com](https://www.marketwatch.com/story/this-hedge-fund-veteran-who-pushed-for-silver-in-february-now-warns-of-short-term-risks-41238ceb?utmsource=openai)) The backwardation in physical over forwards in London’s OTC silver markets is at multi-decade highs. ([marketwatch.com](https://www.marketwatch.com/story/this-hedge-fund-veteran-who-pushed-for-silver-in-february-now-warns-of-short-term-risks-41238ceb?utmsource=openai)) These are classic signals that market stress is elevated and that arbitrage or supply chain frictions could exacerbate volatility. Investors in ETFs are still chasing demand, meaning inflows may catch up and increase pressure. ([marketwatch.com](https://www.marketwatch.com/story/this-hedge-fund-veteran-who-pushed-for-silver-in-february-now-warns-of-short-term-risks-41238ceb?utmsource=openai))
4. Strategic Implications for Investors and Industries
- Short-term tactical caution: Given CME’s margin hikes and year-end tax selling, speculators should consider trimming positions or using hedged exposure until China’s regime kicks in or margin pressures abate.
- Long-term structural bullishness: Rising demand from solar industry, AI/data centres, and tight production, especially where silver is a byproduct (inelastic supply), support a robust fundamental case. Physical players (industrial users, miners) may benefit more than paper traders.
- Availability of physical stock and premium exposure: Physical delivery, premiums in Asia/Middle East, and refining/transport bottlenecks will likely create regional price divergence. Investors—particularly outside U.S. futures markets—might prefer owning physical metal or equity in miners.
- Policy and geopolitical risk escalates: China’s licensing strategy resembles its rare earth playbook and underscores growing resource control. Tariffs, licensing delays, or non-market allocation could exacerbate shortages. Currency strength (particularly U.S. dollar) remains a macro headwind.
5. Key Uncertainties / Open Questions
- Will China’s licensing regime be fully enforced, or will exemptions or delays occur (e.g., for regions or small producers)?
- How will margin increases cascade through leverage funds, ETFs, and lesser-capitalised participants—could forced unwinds trigger spillover stress?
- Will industrial substitution (copper) accelerate if silver stays high, or will cost/payback make it prohibitive? Campbell projects an ~18-month payback for switching solar manufacturing. ([marketwatch.com](https://www.marketwatch.com/story/this-hedge-fund-veteran-who-pushed-for-silver-in-february-now-warns-of-short-term-risks-41238ceb?utmsource=openai))
- How will macro factors—USD strength, interest rates, inflation expectations—interplay with supply tightening to influence silver’s effective return in various currencies/real terms?
