Gold and Silver Deliveries Escalate - A Warning for Currencies?

"Backwardation in commodity futures markets occurs when buyers are prepared to pay higher near-term spot rates over long-term rates due to lack of confidence in future delivery. This is similar to an inverse yield curve in bonds. The huge price spike in silver that began in 2025 is an indication that buyers are aware of the silver supply shortage and mistrust the reliability of the futures exchange markets to honor their settlement protocols in product, rather than in cash, which may be worth considerably less."

"While both gold and silver markets are now in backwardation due to exacerbated physical delivery demand, silver's underlying rationale is unique and rapidly depleting in supply as demand is now skyrocketing. As a result, silver mining companies like Endeavor Silver Corp. (NYSE: EXK) and silver mining ETFs like iShares MSCI Global Silver and Metal Miners ETF (CBOE: SLVP) and Amplify Junior Silver Miners ETF (NYSE: SILJ) might need to be recategorized, as physical silver demand is now encroaching on currency at the retail level."

"Merchants and traders who often needed to travel great distances found that transporting large amounts of precious metals posed excessive risks for loss or robbery, not to mention the costs of armed guards. Ironically. Chinese investors are now paying double-digit premiums for physical spot silver over futures market quotes, due to lapsed confidence in reliable future delivery."

"These initial promissory notes lasted until 1023, when Emperor Renzong decreed the first government-issued paper money during the Sung Dynasty. Historically, the concept of paper currency was invented in 7th Century Tang Dynasty China."

Paper currency originated in 7th century Tang Dynasty China and evolved into government-issued paper money in the Sung Dynasty under Emperor Renzong in 1023. Merchants historically avoided transporting precious metals because of theft risk and the cost of armed protection. Today, Chinese investors pay double-digit premiums for physical spot silver versus futures quotes due to reduced confidence in reliable future delivery. Gold and silver futures trade in backwardation as physical delivery demand intensifies. Silver’s supply rationale is described as rapidly depleting while demand rises sharply. Mining companies and silver-focused ETFs may need recategorization as physical silver demand increasingly functions like currency at the retail level. Strategic rare earth minerals and modern mining processes are expected to further increase value. Backwardation is attributed to buyers paying higher near-term spot rates due to mistrust in future delivery, similar to an inverse bond yield curve.

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