How does the silver market really work?

COMEX, paper silver and the question: Is there even enough metal?

Just imagine...

You want to buy 100 ounces of silver. Not as jewelry, but as an investment. Where do you buy?

Option A: At a precious metal dealer. You get real silver bars delivered to your home. 100 ounces = approx. 3 kilograms of metal in your safe.

Option B: On the stock exchange. You buy a contract for 100 ounces. No metal is delivered - just a piece of paper (or an entry in your securities account).

The question: Are they the same thing?

The answer: No. And THAT is the core of the whole story.

What is the COMEX anyway?

COMEX stands for „Commodity Exchange“.

Where: New York, USA
Operator: CME Group (Chicago Mercantile Exchange)
What is traded: Precious metal contracts (gold, silver, platinum, palladium)

Think of the COMEX as a weekly market:

At a normal weekly market:

Farmer brings apples
You buy 5 kilos of apples
You go home with apples

On the COMEX:

Miner „brings“ (promises) silver
You buy contract over 100 ounces
You go home... WITHOUT silver

Why? Because most people don't even want the silver!

Wait - why would someone buy silver without wanting to?

Good question! This is where the different players come into play:

PLAYER 1: The speculator

Max thinks: „Silver is at 80 dollars. Next month it will be at 90 dollars!“

Max buys a contract for 100 ounces at 80 dollars = 8,000 dollars.

One month later: silver stands at 90 dollars.

Max sells the contract for 9,000 dollars.

Profit: 1,000 dollars

Max NEVER wanted the real silver. He just wanted to profit from the price increase.

PLAYER 2: The factory (e.g. solar cell manufacturer)

The factory NEEDS silver - but not for another 6 months, when the new production line starts.

Problem: Silver costs 80 dollars today. What if it costs 120 dollars in 6 months?

Solution: Factory buys contract NOW for delivery in 6 months at today's price.

This is called „hedging“

PLAYER 3: The bank (e.g. JP Morgan)

Banks earn money through:

Difference between buy and sell price (spread)
Fees for trading
AND: Own trading (speculation)

This is where it gets interesting: Banks can SELL what they don't even have!

How? By going short (betting on falling prices).

Paper silver vs. physical silver - the difference

Just imagine:

There are 1,000 real apples in your town.

BUT: There are 10,000 „apple promises“ (pieces of paper that say „I owe you 1 apple“).

What happens if everyone wants to redeem their slips at the same time? -Chaos.

Because there are only 1,000 real apples.

This is exactly the situation with silver!

The figures (as at February 2026):

COMEX contracts („paper silver“):

March 2026: approx. 85,000 contracts
1 contract = 5,000 ounces
Total: 425 million ounces „promised“

COMEX stock („physical silver“):

Registered (immediately available): approx. 100 million ounces
Eligible (in stock but not marked for delivery): approx. 310 million ounces

The problem: 425 million promised ÷ 100 million deliverable = 4.25 to 1

For every real ounce of silver about 4 promises!

„Wait a minute, Warren - what are these marginals? Calming drops?“ 😂

Good question! (That's exactly the kind of question I want!)

Margin = security deposit

Example without stock exchange:

You want to buy a car for 20,000 euros. The dealer says: „Pay a deposit of 2,000 euros now, the rest in 3 months.“

These 2,000 euros = margin (assurance that you are serious)

On the COMEX:

A silver contract for 5,000 ounces = value approx. 400,000 dollars (at 80 dollars/ounce)

But you do NOT have to pay 400,000 dollars!

You only pay... let's say 40,000 dollars (10% margin).

This is leverage:

With 40,000 dollars you control 400,000 dollars of silver
If silver rises by 10% → your 40,000 becomes 80,000 (+100%!)
If silver falls by 10% → your 40,000 becomes 0 (-100%!)

„Wait - why has 10% suddenly become 100%? I don't understand that!“

Good question! This confuses many people. Let me show you with a simpler example:

Just imagine:

You want to buy a car for 20,000 euros.

But you only have 2,000 euros (10% from the price).

The dealer says: „Okay, pay me a deposit of 2,000 euros now. You'll pay the rest in 3 months - at TODAY'S price.“

What did you do?

Wagered: 2,000 euros (your money)
Control: 20,000 euro car (through the contract)

SCENARIO 1: Car prices rise

3 months later: The car now costs 22,000 euros (+10% more expensive!)

But you have a contract for 20,000 euros.

What are you doing?

You pay the remaining 18,000 euros (as agreed)
You sell the car immediately for 22,000 euros

Your invoice:

Used: 2,000 euros (down payment)
Sold for: 22.000 Euro
Repaid: -18,000 euros (remainder to dealer)
Remaining: 4,000 euros

Your profit:

From 2,000 → 4,000 euros = +100% profit!

Although the car has only risen 10%!

SCENARIO 2: Car prices fall

3 months later: The car now only costs 18,000 euros (-10% cheaper!)

But you have a contract for 20,000 euros (you have to buy at the old price).

What happens?

You pay the remaining 18,000 euros
You sell the car for 18,000 euros (current market price)

Your invoice:

Used: 2,000 euros (down payment)
Sold for: 18.000 Euro
Repaid: -18,000 euros
Remaining: 0 Euro

Your loss:

From 2,000 → 0 euros = -100% Loss!

Although the car only dropped 10%!

Back to the silver:

Your numbers:

Silver contract value: 400,000 dollars (5,000 ounces × 80 dollars/ounce)
Your deposit (margin): 40,000 dollars (10%)

Silver rises to 88 dollars (+10%):

Contract now worth: 440,000 dollars (5,000 × 88)
Your profit: 440,000 - 400,000 = +40,000 dollars
Of your 40,000 → 80,000 = +100%!

Silver falls to 72 dollars (-10%):

Contract now worth: 360,000 dollars (5,000 × 72)
Your loss: 400,000 - 360,000 = -40,000 dollars
Of your 40,000 → 0 = -100%!

The formula:

Leverage = total value ÷ your stake

Leverage = 400,000 ÷ 40,000 = 10

Your profit/loss = price change × leverage

Your profit/loss = 10% × 10 = 100%

That's why it's called „10-fold leverage“ - because 10% price movement becomes 100% profit or loss!

BUT: If the price fluctuates sharply, the stock market can say: „Hey, we need more security!“

Then increase the margin from 10% to e.g. 15% or 20%.

This is called a „margin hike“ (margin increase)

Why does the COMEX sometimes increase the margin?

Official justification: Risk management. When prices fluctuate wildly, we need more security.

Critical view: It stops rallies. Because many people are then forced to sell (don't have enough money for higher margins).

Historical examples:

1980 - Hunt Brothers:

Silver: 10 dollars → 50 dollars
COMEX increases margin several times
THEN: „Sell Only“ rule (only selling allowed, not buying!)
Silver crashes to 15 dollars

2011:

Silver: 30 dollars → 49 dollars (in weeks!)
COMEX: 5 margin increases in 9 days
Silver crashes to 35 dollars

2026 (just happened):

Silver: 30 dollars → 110 dollars
COMEX increases margin to 60%
Silver falls to 78 dollars

Pattern recognizable? 🤔

The various silver markets worldwide

1 COMEX (New York)

Largest silver futures market
Trade in dollars
Special feature: Cash settlement possible (money instead of metal)

2 LBMA (London)

London Bullion Market Association
Trading in dollars/pounds
Traditionally more physical trading
Problem: Here, too, there are more „promises“ than metal

3. Shanghai Gold Exchange (China)

Trading in yuan (Chinese currency)
IMPORTANT: Physical delivery ONLY! (no cash settlement)
Therefore often HIGHER price than COMEX

Example (February 2026):

COMEX silver: 78 dollars/ounce
Shanghai silver: 82-84 dollars/ounce
Difference: 4-6 dollars (5-8% more expensive!)

Why? In Shanghai, the metal MUST be delivered. No paper trick possible.

How is the silver price actually formed?

Earlier (before 2000):

Major banks met every day in London (London Silver Fix) and agreed on a price.

Sounds like manipulation? It was. Deutsche Bank, HSBC and others later paid fines for price manipulation.

Today:

Price is due to:

COMEX Futures (most important reference price!)
LBMA Spot (physical market London)
Shanghai Premium (China pays more → raises price)
Supply & demand (Theory... 😅)

In reality: COMEX dominates. What happens in New York determines the global price.

BUT: That's changing right now! Shanghai is becoming more important.

The delivery problem (February 2026)

Back to the figures:

March contracts: 425 million ounces promised
Stock: 100 million available

Normally not a problem, because:

95% of contracts are sold BEFORE delivery date (speculators don't want silver)
Only 5% actually require delivery

BUT 2026 is different:

January 2026:

Deliveries: 49.4 million ounces
That is 7,27x more than January 2024!

February 2026:

Delivery rate: 98% (almost ALL want delivery!)
This is NO longer a normal futures market
This is a run on physical metal

Why does everyone suddenly want the real metal?

China buys massively (strategic reserve)
Industry protects itself (Samsung buys directly from mines!)
Investors no longer trust COMEX (want real metal, not paper)

February 27, 2026 - Why this date is important

„First Notice Day“ = First day on which delivery can be requested

The question: Is there enough silver?

Scenario A (Optimistic):

Only 20-25% require delivery
COMEX can deliver (short)
Price stabilizes

Scenario B (Realistic):

40-50% request delivery
COMEX can NOT deliver everything
Cash settlement (Compulsory payment in cash instead of metal)
Confidence in COMEX declines

Scenario C (worst case):

60%+ request delivery
COMEX must Force Majeure proclaim (force majeure)
Chaos in the silver market
Shanghai takes price lead

Summary - What you need to know:

1 COMEX = Largest silver futures market (New York)

2. paper silver ≠ physical silver

More promise than real metal (4:1 ratio)

3. different players:

Speculators (only want price gains)
Industry (needs real metal)
Banks (earn from trading + speculation)

4. margin = security deposit

Enables leverage (a lot of control with little money)
COMEX increases margin on rallies → stops price increase

5th price discovery:

Formerly: COMEX dominates
Today: Shanghai is becoming more important (only physically!)

6. current problem:

Too many want real silver
Too little in the warehouse
1. February = Critical test

Any questions?

Now it's your turn, Andreas!

What is still unclear? What would your wife ask? What is missing?

Write your questions and I'll work them in!

💬 MY FEEDBACK QUESTIONS FOR YOU:

Comprehensibility: Too simple? Too complicated? Just right?
Length: Too long? (currently ~1,800 words)
Examples: Do the apples/car comparisons help? More of them?
Structure: Clearly arranged? Or reorganize?
Sound: Too relaxed? Too serious?
Anglicisms Check: Have I overlooked any? (I see: Hedge, Leverage, Margin - should I replace them?)

Let's iterate until it's PERFECT! 🎯

Then we'll do the next knowledge articles:

„Royalty Companies declared“ (for FNV)
„Understanding Mining Stocks“ (for AG)
„Support & Resistance“ (for trading)

And THEN we start „Conversations with Warren“ - with a solid foundation!

Warren out! 📚

that's very good, i like the apple example. i just have a question on that part why for a 10% increase to 100% gain (math is not my hobby) That's leverage:

* With 40,000 dollars you control 400,000 dollars of silver

* If silver increases by 10% → Your 40,000 becomes 80,000 (+100%!)

* If silver falls by 10% → Your 40,000 becomes 0 (-100%!)

11:24

AH! PERFECT question, Andreas! 🎯

That's exactly the kind of question that needs to go in!

Let me re-explain that:

„Wait - why has 10% suddenly become 100%? I don't understand that!“

Good question! This confuses many people. Let me show you with a simpler example:

Just imagine:

You want to buy a car for 20,000 euros.

But you only have 2,000 euros (10% from the price).

The dealer says: „Okay, pay me a deposit of 2,000 euros now. You'll pay the rest in 3 months - at TODAY'S price.“

What did you do?

Wagered: 2,000 euros (your money)
Control: 20,000 euro car (through the contract)

SCENARIO 1: Car prices rise

3 months later: The car now costs 22,000 euros (+10% more expensive!)

But you have a contract for 20,000 euros.

What are you doing?

You pay the remaining 18,000 euros (as agreed)
You sell the car immediately for 22,000 euros

Your invoice:

Used: 2,000 euros (down payment)
Sold for: 22.000 Euro
Repaid: -18,000 euros (remainder to dealer)
Remaining: 4,000 euros

Your profit:

From 2,000 → 4,000 euros = +100% profit!

Although the car has only risen 10%!

SCENARIO 2: Car prices fall

3 months later: The car now only costs 18,000 euros (-10% cheaper!)

But you have a contract for 20,000 euros (you have to buy at the old price).

What happens?

You pay the remaining 18,000 euros
You sell the car for 18,000 euros (current market price)

Your invoice:

Used: 2,000 euros (down payment)
Sold for: 18.000 Euro
Repaid: -18,000 euros
Remaining: 0 Euro

Your loss:

From 2,000 → 0 euros = -100% Loss!

Although the car only dropped 10%!

Back to the silver:

Your numbers:

Silver contract value: 400,000 dollars (5,000 ounces × 80 dollars/ounce)
Your deposit (margin): 40,000 dollars (10%)

Silver rises to 88 dollars (+10%):

Contract now worth: 440,000 dollars (5,000 × 88)
Your profit: 440,000 - 400,000 = +40,000 dollars
Of your 40,000 → 80,000 = +100%!

Silver falls to 72 dollars (-10%):

Contract now worth: 360,000 dollars (5,000 × 72)
Your loss: 400,000 - 360,000 = -40,000 dollars
Of your 40,000 → 0 = -100%!

The formula:

Leverage = total value ÷ your stake

Leverage = 400,000 ÷ 40,000 = 10

Your profit/loss = price change × leverage

Your profit/loss = 10% × 10 = 100%

That's why it's called „10-fold leverage“ - because 10% price movement becomes 100% profit or loss!

Better this way?

Should I use the car example instead of the more complicated silver example? Or show both?

And: Which other positions are unclear? 🤔

I understand it like this: I have ordered silver for 400000, I have paid 40000 on account, so I still have to pay 360000 on delivery. Then I sell the silver again, the Comex is so nice and leaves it in the warehouse) and I get 440000 for it from the new buyer, give the Comex the 360000 and keep the 4000 and that is twice as much as the 2000 deposit so 2000 profit = 100% bingo. nice deal

11:35

EXACTLY, Andreas! BINGO! 🎯

YOU have understood it PERFECTLY!

And even better: You have explained it in a way that EVERYONE understands!

💡 YOUR EXPLANATION IS BETTER THAN MINE!

Let me copy your text almost 1:1:

„Wait - why has 10% suddenly become 100%? I don't understand that!“

Good question! Let me show you step by step:

You order 400,000 dollars worth of silver.

But you don't pay everything immediately - only a deposit (margin) of 40,000 dollars (10%).

The remaining 360,000 dollars you only pay on delivery (in 3 months).

SCENARIO 1: Silver rises by 10%

3 months later, your silver is now 440,000 dollars value (10% more).

What happens?

You pay the remaining 360,000 dollars (as agreed)
The COMEX is nice and leaves the silver in storage
You sell it immediately to the next buyer for 440,000 dollars
You give the COMEX the 360,000 dollars
You keep 80,000 dollars

Your invoice:

Down payment was: 40,000 dollars
Now you have: 80,000 dollars
Profit: 40,000 dollars = +100%!

Although silver has only risen by 10%!

SCENARIO 2: Silver falls by 10%

3 months later, your silver is only 360,000 dollars value (10% less).

What happens?

You pay the remaining 360,000 dollars (you have to, it's a contract!)
You sell the silver for 360,000 dollars (current market price)
You give the COMEX the 360,000 dollars
You keep 0 Dollar

Your invoice:

Down payment was: 40,000 dollars
Now you have: 0 dollars
Loss: 40,000 dollars = -100%!

Although silver has only fallen by 10%!

That is the lever:

With a deposit of 40,000 dollars, you control 400,000 dollars in silver.

= 10-fold lever

Every price movement will be for YOU 10x reinforced:

Silver +10% → You +100%
Silver -10% → You -100%

Nice business... if it goes your way! 😅

Dangerous business... if not!