What Does Silver’s Volatility Mean For the Markets?

Posted by Cam Hui -
Preface: Explaining our market timing models

We maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

 

The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

 

 

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don’t buy if the trend is overbought, and vice versa). As this site is shutting down on March 31, 2026, my inner trader is retiring so that there will be no tradings outstanding at the end of the quarter. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 to 16-Jan-2026 is shown below, and the chart will no longer be updated.

 

 

The latest signals of each model are as follows:
  • Ultimate market timing model: Buy equities (Last changed from “sell” on 28-Jul-2023)
  • Trend Model signal: Bullish (Last changed from “bearish” on 27-Jun-2025)

Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent and on BlueSky at @humblestudent.bsky.social. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.
 

Subscribers can access the latest signal in real time here.

 

 

Parabolic Silver

How should investors interpret the parabolic rise in silver prices? The silver ETF has been rising on surging volume. Silver has also outperformed gold handily since mid-November as the silver/gold ratio has also went parabolic. However, Friday’s island reversal pattern is silver (and gold) is concerning for precious metal bulls.
 

 

The key question for investors is, “What does this mean for asset returns from an inter-market analytical perspective?”
 

 

The Usual Suspects

To interpret the reason behind the surge in silver prices, let’s interrogate the usual suspects normally responsible for the advance in silver. From a trader’s perspective, it can be regarded as a poor man’s gold and, at the extreme, a high beta version of gold.

 

The first suspect is the inflation hedge trade, also known as the debasement trade. However, inflation expectations indicators, such as the relative performance of TIPs to zero-coupon long Treasuries, the 30-10 year Treasury yield curve and the 30-year Treasury yield, were flat since silver prices started rising strongly in November.

 

 

If surging silver prices is a signal of currency debasement fears, investors should see it in a steepening yield curve. While various part of the Treasury yield curve did steepen in November and early December, the silver parabolic period that began in early December saw little changes in the shape of the yield curve.
 

 

Could rising silver prices be a reflection of a loss of confidence in America? I analyzed the performance of the “Sell America” trade, as measured by the relative price performance of equivalent duration foreign sovereign bonds to Treasuries, the relative performance of non-U.S. stocks to the S&P 500 and the USD Index. But the silver rally began well before the “Sell America” rally, which is mainly attributable to the global anxiety over President Trump’s Greenland annexation initiative.
 

 

Nevertheless, the recent sudden drop in the USD Index is concerning. When the USD plunged last week, its decline was exacerbated by President Trump’s remark that he is not concerned about the currency’s drop. In fact, he characterized the USD as “doing great”.
 

The hand wringing over the drop in the greenback has to be put into perspective. While it is true that the USD has fallen, the level of the Real Broad Dollar Index during the current Trump 2.0 period is far above the level seen during Trump 1.0. Incidentally, the conclusions are the same regardless of whether the currency is measured on a real inflation-adjusted basis or in nominal terms.

 

 

In short, interrogation of the usual suspects finds no obvious fundamental culprit for the recent silver price parabola.

 

 

An Overbought Market

From that perspective, I can only attribute the surge in silver prices as an overenthusiastic reaction to the bull move in gold. The silver parabolic is a symptom of precious metals as the “flavour of the month”, which is likely to reverse itself some time in the near future.

Indeed, an analysis of the Gold Miners ETF (GDX) finds the ETF reversed Friday from overbought conditions in virtually all technical internals and testing resistance as defined by a rising trend line. Nevertheless, relative breadth remains strong (bottom panel).
 

 

As another sign of an overbought market, the gold to S&P 500 volatility ratio has risen to an all-time high.
 

 

From a sentiment perspective, the market is poised for a reversal. We are at the point in the sentiment cycle where even Tether, the crypto stablecoin firm, is buying gold in a scale that surpasses central banks. Tether reported that it added 27 metric tons of gold to its reserves in Q4 2025 after buying roughly 26 metric tons in Q3.

 

As well, USD sentiment is an off-the-charts bearish extreme, and the USD is inversely correlated to precious metals and commodity prices.

 

The 5-day RSI of the USD Index recently fell below 10, which is usually a signal for a tactical reversal.
 

 

 

Reversal Ahead

This kind of price action brings up Bob Farrell’s Rule #4: “Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.” While it’s impossible to spot the exact top when prices are going parabolic, reversals usually happen when a crisis forces a reversal.

 

While it’s impossible to guess the catalyst for a price reversal ahead of time, but the nomination of a new Fed Chair was not the most likely candidate in my estimation. While a single day’s price action doesn’t make a trend, the “Sell America” trade showed distinct signs of reversal as U.S. Treasury prices outpaced foreign sovereign bonds, the S&P 500 beat the global stocks, and the USD rallied.

 

However, investors should view any potential reversal in precious metals and the USD from both short- and long-term perspectives. In the long term, the gold/S&P 500 and gold/60-40 portfolio has staged convincing relative breakouts that signal the start of a market cycle characterized by hard asset leadership. Such changes in leadership have also coincided with changes in the value/growth, market capitalization and U.S./non-U.S. market leadership. Indeed, some of those factors are being seen today.

 

However, the precious metals rally is highly extended in the short run and can reverse itself at any time. A pullback in gold and silver prices could also coincide with a short-term leadership renewal by U.S. large-cap growth stocks, which have been the main laggards during this episode.
 

 

In conclusion, silver has gone parabolic, and even the silver/gold ratio has surged. I can find no satisfactory fundamental reasons beyond rising excessive bullish precious sentiment. Under such conditions, it’s impossible to try to time the blow-off top in precious metals but a reversal may have begun last Friday. Even though gold and silver prices are highly extended, we believe the secular trend of a hard asset leadership cycle is intact, and any weakness is a pullback in an uptrend.

 

13 thoughts on “What Does Silver’s Volatility Mean For the Markets?”

  1. “Yougotthistrading” interprets Friday’s shiny metals crash as a knee-jerk reaction to the surprise nomination of Warsh, whom Polymarket had only given 26% odds. Apparently, Warsh is perceived to be an inflation hawk, thus not gold-bug-friendly.

    According to Martin Wolf, this perception may well be flawed. He says Warsh was an inflation hawk under Obama, but is now a dove. It seems Warsh just wants to be a Republican favorite.
    So, the bets re: Gold and Silver are off.

    1. When a crash happens, the media looks around for a cause. The Warsh appoint just happened to be a big event on the same day that the CME killed the silver bubble by raising margin rates. The last straw for them was the silver ETF trading more than the SPY ETF of the S&P 500! See my comments below. Speculation was too dangerously hot and heading hotter.

  2. In my opinion, precious metals crash was about excessive, bubble speculation using margin. The CME Commodity Exchange raised margin requirements on silver two weeks ago by a small amount to calm speculation. That turned out to be a nothingburger. Silver dipped for a day and then went roaring higher. Early last week, the CME raised again with no cooling impact and then stomped extremely harder on Friday when they set higher margin rates after the close on Monday. That caused chaos in the last two hours of trading before the weekend. What does that mean for Monday trading before higher margin kicks in the next day? See the comment from an expert below.
    This is not just a U.S. trade. Massive speculation in Asia, especially China, propelled prices higher. There was a huge riot at the largest precious metals store in China last Thursday before the crash. Chinese market regulators stopped trading to protect investors in a silver ETF when frenzied buying sent its price much higher than the value of the physical silver in the ETF. This all reminded me of when I was visiting San Francisco in 1980 near the silver metal peak and saw a lineup around the block to enter a precious metals store. People urgently buying bullion or selling family silverware.
    The extent of the Friday decline means zillions of margin traders were wiped out who the day before had huge gains. The brokers simply sell out under margined accounts throughout the day at any price. This margin action at the peak of a commodity bubble is what killed the silver bubble in 1980.
    A heads up, stats on margin debt on American stock (not commodity) exchanges show margin debt is over $1.2 trillion up from $600 billion in 2023. It’s far beyond previous market peaks.
    These are just my observations and not recommendations. Who knows what’s going to happen?
    Expert Commentary:
    Then, at 2:00 pm EST, the CME group raised maintenance margin requirements again, the second increase in three days, effective after the close on Monday, February 2. Gold maintenance goes from 6% to 8%, silver from 11% to 15%, platinum from 12% to 15%, and palladium from 14% to 16%. The margin on copper was raised too.
    By announcing the hike before Friday’s close, the CME effectively warned traders that any positions held over the weekend would be subject to significantly higher collateral requirements by Monday. This forced many participants to liquidate their positions during the final hours of trading on Friday, which contributed to the late-session acceleration of the price drop.

  3. Thank you so much to all contributors but today especially Ken for always trying to help understand the issues underlying different markets. I am going to miss this Community and it’s Sane analysis after March 2026.
    Thanks!!

        1. Same. I still remember the feelings I experienced finding this blog in the 2015/2016 era. Finding someone who looks at markets the same way, but does a much better job than I can organizing those thoughts jumbled around. Ken and I connected via Zoom in 2020 because of this blog. It has been such a privilege reading the real time thoughts of Mohit, Ken, D.V., et al these past years. Which actually has me thinking…would anyone be interested in setting up some sort of group email, slack channel, etc.?

  4. I’ll repost this not as a reply to DV’s comment:

    Same. I still remember the feelings I experienced finding this blog in the 2015/2016 era. Finding someone who looks at markets the same way, but does a much better job than I can organizing those thoughts jumbled around. Ken and I connected via Zoom in 2020 because of this blog. It has been such a privilege reading the real time thoughts of Mohit, Ken, D.V., et al these past years. Which actually has me thinking…would anyone be interested in setting up some sort of group email, slack channel, etc.?

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