Counterparty risk in silver exposed
That TD Securities traded silver short and taken losses not once but twice alerts us to increasing counterparty risk not just in silver contracts but gold as well. There will be others.
ALASDAIR MACLEOD
This week, gold gently marched higher while silver continued its moonshot.
In mid-morning European trading, gold at $4606 was up $100 from last Friday’s close, while silver at $90.75 was up $10.85.
Technically, gold is in an old-fashioned bull market, the price rising with increasing open interest on Comex, illustrated below:
It took some persuading for the investment management community to join the party, being net sellers of contracts until 2 December when open interest declined to about 418,000 contracts, by which time the price had risen to over $4100.
Only now momentum traders and sundry speculators are joining in, taking open interest up to 535,000 contracts on yesterday’s preliminary figures.
But this includes other reported and non-reportable categories.
On the last COT figures (6 January) managed money, which is mainly hedge funds were still not really playing, as shown next:
Presumably, professional investors are either confused, or still chasing tech stocks.
But the point is that when they understand what is going on with gold, a squeeze on the shorts will develop in earnest.
For now, we can say that this action will be mainly in derivatives, because hedgies only trade in them rarely touching physical metal.
But there is an increasing danger to this approach from what’s happening in silver.
London forwards are being encashed in a market with very little liquidity.
The whole situation is extremely dangerous for those who are on the wrong side of it.
Kitco News reported that traders at TD securities shorted silver at $78 with a target of $40, and would have been stopped out at $92.
This follows an earlier short in October when prices broke above %50 and exited the trade with a $2.4m loss.
We can be sure that TD Securities are not alone in getting silver horribly wrong.
But it gives us a clue as to why very few in the investment community are buying silver futures: They really don’t understanding what’s happening and are frightened of getting it horribly wrong.
Our next chart makes the point about investors avoiding the silver trade:
Open interest at 150,000 is low and has hardly moved from mid-November, since when silver has nearly doubled.
The reason financial speculators don’t understand it is that it’s a commodity not a financial story, whereby for decades silver has been depressed by a combination of China holding the price down while the dollar in which it is priced has been losing purchasing power.
The result was bound to be explosive eventually.
It’s not just silver and platinum group metals, but the entire commodity complex including raw materials and agrifoods.
Base metals are also undergoing a massive reassessment, illustrated by copper:
The fact of the matter is that commodities as a whole are catching up with the dollar’s loss of purchasing power.
In silver’s case, it’s forcing a liquidity crisis as industrial users are increasingly panicking, demanding delivery of physical in financial markets at a time when the refiners are flat-out processing gold.
On Comex, since last January 16,688 tonnes of silver have been stood for delivery.
And in London, AI generated information states,
“As of end-September 2025, total silver held in LBMA vaults was 24,581 metric tonnes (~790 million troy ounces), but only about 4,821 metric tonnes (roughly 155 million troy ounces) were available in the “free float” or unallocated eligible category for immediate trading or delivery.”
That was when at $45 the silver price was still contained under historic $50 peaks.
Since then it has doubled, and the TD Securities of this world have been badly caught.
This story looks like intensifying and exposing counterparty failure risk which will affect gold contracts because traders have positions in both these contracts.
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