Silver Shock
Markets, China, and Critical Minerals
A Critical Announcement
On November 7th last year, the US Department of the Interior quietly released its final 2025 Critical Minerals List.1 For the first time, silver was formally designated as a critical mineral. More than an investable precious metal, silver underpins the electronics industry, solar manufacturing, and key infrastructure and defense systems. Its superpower: it is the most conductive metal for electricity on earth.
From a policy perspective, China’s dependence on silver could serve as a strategic fulcrum to offset American vulnerability in rare earths and other critical resources. This crisis may provide the political and market impetus necessary to act.
Price Volatility & China
Since early November, the silver price has surged, from $48.15 on Nov 7 to a recent high of $121.79 before retracing sharply on Friday to $85.25. Even after this pullback, prices remain dramatically elevated relative to early autumn.
In the investment world, all eyes are on futures markets and China. Gold’s increase in value is largely seen as a function of central bank purchases over time, particularly the People’s Bank of China. Silver however, is not widely held by central banks. Its dual use, as a store of value and an industrial commodity, has given it both a retail and commercial base of investors.
What is different this time is that there is a wide divergence between silver prices in Western financial markets and physical markets in Shanghai, where silver is selling at a significant premium of around 40%. This premium suggests tight physical supply and strong local demand, though it has also prompted questions about market structure and policy intervention. (A new website tracks these differentials in real time: metalcharts.org/shanghai.)
At risk is the concept of precious metals as a safe haven asset, given recent volatility.
The discount to NAV (net asset value) is also enormous in US markets, reaching 19.3% as of Jan 30, closer to the crypto ETF discounts such as GBTC to Bitcoin than to precious metals. What this uptick means is that SLV ( the iShares Silver Trust) is trading almost 20% below the value of the physical silver it holds; historically this discount has been only 1-2%. In the absence of a remarkable decline in industrial demand, this kind of movement signals liquidity stress. Traders are describing this as a “six-sigma shock” or a statistical outlier. Especially since silver, unlike gold, is not a balance sheet stabilizer; it has a dual use as a speculative asset and an industrial commodity.
The simultaneous fall in the prices of other assets such as gold and bitcoin supports the liquidity thesis. During a liquidity crunch, investors sell what they can. There is speculation that massive shorts that went wrong broke the silver market, and there could be collateral damage at institutions that followed this path. At risk is the concept of precious metals as a safe haven asset, given recent volatility. Here in Chicago, the CME Group raised COMEX margin requirements on these trades.
What happened on Friday? As Jim Bianco notes on X:
❝ Yesterday’s 19% discount to NAV broke the record set on 10/10/2008, the day the TARP was introduced during the Global Financial Crisis…It doesn’t mean we will automatically see a firm fail, but the silver market needs to correct itself quickly; otherwise, it probably will.
Silver is Everywhere
Beyond the price action however, is a growing realization of the importance of silver in 21st century life. Previously, silver’s principal use was as money. If you have an old silver quarter, it is now worth many times its face value. You still have silver in your pocket, however it is now powers your mobile phone, sits within your laptop, and powering your car.
The strength in the price of silver has coincided with increased Chinese industrial usage which is real. It is not merely speculative, but is based on a structural growth in demand. While attention has been focused on China’s dominance of rare earths, China remains dependent on imported silver to run its critical export machine.
Our Mutual Dependence on Silver
Both the US and China are dependent on external supplies of silver, although China consumes 50% more in absolute terms. China mines more domestically than the United States, though it still relies heavily on imported concentrates and recycled flows to meet total demand. A sustained silver supply shock in China would be felt globally in the solar and electronics industries—and by American consumers.
Silver and China in the 20th Century
In 1934, the United States passed the Silver Purchase Act2, a measure driven largely by domestic political pressures that aimed to raise silver prices. Because China remained on a silver monetary standard at the time, the resulting rise in global silver prices triggered substantial bullion outflows and monetary contraction within China’s financial system.
This episode remains debated among economic historians, but it illustrates a broader principle: when a nation’s monetary or industrial system rests heavily on a globally traded metal beyond its policy control, external price shifts can have outsized domestic consequences.
As Milton Friedman and Anna Schwartz observed3, weak silver prices in the early 1930s initially functioned much like a depreciated currency, providing China with a certain measure of insulation from global deflation. The subsequent price rise reversed that dynamic.
However, as economists Loren Brandt and Thomas Rawski later emphasized 4 , China’s economic fragility during this period cannot be attributed to silver policy alone. Fiscal weakness, political fragmentation, warlordism, and institutional constraints were already deeply embedded and monetary reform was already underway. The silver shock did not create those vulnerabilities, but it likely intensified pressures at a delicate moment.
Silver is no longer China’s monetary standard, but it now critical to its industrial power base in solar energy, automobiles, and electronics. It continues to be a vulnerability in ways that could not have been imagined almost a century ago.
