WHEN PAPER
MEETS METAL

"The real battleground in silver has never been the quoted spot price on a screen, but the availability of deliverable ounces when stress hits."

There are two silver markets. One trades on screens — futures contracts, options, exchange-traded products, over-the-counter swaps. The other exists in vaults: actual bars of refined metal, numbered and weighed, available for delivery to whoever holds the right to claim them. For most of the past four decades, the relationship between these two markets was orderly. Paper prices led, physical prices followed, and the gap between them — the Exchange for Physical spread — held at around twenty-five cents per ounce.

That relationship is under stress. COMEX registered silver — the metal formally available for delivery against futures contracts — has fallen from approximately 240 million ounces in April 2020 to approximately 86 million ounces in February 2026: a 64% drawdown in six years. Open interest — the total number of outstanding paper claims — stands at roughly 230 million ounces. The ratio of paper to deliverable metal is approximately 2.7 to one. The EFP spread has expanded from its historical $0.25 norm to $1.10 during the tightness episodes of 2025. And on February 26, 2026 — contract expiry day — CME Group's Globex electronic trading platform went dark for 94 minutes, halting price discovery in gold, silver, and copper at precisely the moment silver was testing a technically significant breakout level.

None of this is happening in isolation. The Bank of Japan has raised its policy rate to 0.75% — a 30-year high — and the yen carry trade, estimated at somewhere between $261 billion and $1.1 trillion depending on the methodology, is stagnating: too large to exit without triggering the losses it was designed to avoid, too expensive to maintain as the rate differential narrows. Capital that has nowhere comfortable to go tends to find its way into hard assets. And silver is now, officially, a U.S. critical mineral — which means the legal infrastructure for restricting its export exists, whether or not it is ever used.

This is not a prediction. It is a description of what is documented, sourced, and verifiable. The story of gold and silver in 2025 and 2026 is the story of what happens when the paper market and the physical market tell different stories about the same metal — and the gap between them keeps widening.

How COMEX Actually Works — and Why It Matters

COMEX — the Commodity Exchange, Inc., operated by CME Group — is the primary exchange for gold and silver futures contracts in the United States. A futures contract is a legally binding agreement to buy or sell a specific quantity of metal at a specific price on a specific future date. In practice, the vast majority of these contracts are never fulfilled by physical delivery. Traders buy and sell them as price instruments, rolling positions forward from contract month to contract month, settling in cash.

The exchange maintains two categories of inventory in its approved warehouses. Registered silver is metal that has been formally designated as deliverable — it carries a warrant, it meets exchange specifications, and it can be claimed by a futures contract holder who chooses to stand for delivery rather than roll or cash-settle. Eligible silver meets the exchange's quality standards but has not been designated for delivery; it sits in the vault but is not in the pool of deliverable supply unless its owner chooses to register it.

The Exchange for Physical (EFP) is a separate mechanism: a privately negotiated transaction in which a party holding a futures position exchanges it for a position in the physical market — typically London. The EFP spread is the price difference between the futures contract and the London spot price. Under normal conditions, this spread reflects the cost of carry: storage, insurance, and financing. When the spread widens significantly, it signals that physical metal is scarce relative to paper claims, or that moving metal between markets is unusually difficult or expensive.

The London market — governed by the London Bullion Market Association (LBMA) — operates differently from COMEX. London trades in unallocated metal: claims on a pool of bullion held by major banks, rather than specific numbered bars in specific vaults. The LBMA Gold Price (the "fix") is set twice daily and serves as the global benchmark for physical transactions. When the COMEX-London spread widens dramatically — as it did in February 2025 (approximately $20) and August 2025 (approximately $125 on the tariff shock) — the two markets are telling different stories about the same metal, and the arbitrage that should close the gap is being blocked by something: tariff risk, logistics constraints, or a shortage of deliverable supply.

The Vault Is Emptying

The numbers are not in dispute. COMEX registered silver peaked at approximately 240 million ounces in April 2020. By February 2026, it had fallen to approximately 86 million ounces — a 64% decline over six years. The LBMA's London inventories have fallen even more sharply: approximately 91% from their 2020 peak, according to analysis published in February 2026.

The decline is not uniform. It has accelerated. From September 2025 to February 2026 — five months — COMEX registered silver fell from approximately 200 million ounces to 89 million ounces: a 55% decline in a single season. In December 2025, more than 47.6 million ounces were claimed for delivery in the first four trading days of the month — more than 60% of the registered inventory at the time. The metal left the vaults. It did not come back.

The Silver Institute's World Silver Survey 2025 documents the structural reason: the global silver market has been in deficit for five consecutive years. In 2024, total demand reached 1.16 billion ounces against mine production of 819.7 million ounces — a shortfall of approximately 148.9 million ounces. Industrial applications accounted for 58.5% of total demand, a record. Solar photovoltaic demand alone represented 17% of total demand in 2024, up from 5.6% in 2015. The cumulative deficit from 2021 to 2025 approached 800 million ounces.

Sources: COMEX depository statistics via CoinWeek (Feb 13, 2026), goldpriceforecast.com (Feb 27, 2026), jinlow.substack.com

The Stagnant Yen Carry Trade

For decades, the Bank of Japan maintained near-zero and then negative interest rates as part of its effort to escape deflation and stimulate growth after the collapse of the 1980s asset bubble. This policy created one of the most lucrative trades in global finance: borrow in yen at essentially no cost, convert to another currency, invest in higher-yielding assets — U.S. equities, emerging market bonds, commodities, real estate — and pocket the difference. The yen carry trade, as it became known, accumulated to an estimated $1.1 trillion (TSLombard, August 2024), though estimates vary widely depending on methodology.

In July 2024, the Bank of Japan raised its policy rate to 0.25% — a modest increase by any standard, but the first meaningful tightening in decades. The market's reaction was not modest. On August 5, 2024, the Nikkei fell approximately 12% in a single session. Global equities sold off sharply. Bitcoin lost hundreds of billions in market capitalisation within days. The BOJ's deputy governor was forced to publicly state that the bank "will not raise rates when markets are unstable." The carry trade had not fully unwound. It had flinched.

By December 2025, the BOJ had raised its policy rate to 0.75% — a 30-year high. The yen remained at 150–160 per dollar despite successive rate hikes, suggesting that the carry trade had not unwound but had instead stagnated: positions too large to exit without triggering the losses they were designed to avoid, in a market where the rate differential was narrowing but had not closed. BCA Research estimated that outstanding yen forwards held by global hedge funds and principal trading companies stood at ¥35 trillion as of October 2025. Japanese insurance companies — major participants in the carry trade — had hedged only 46% of their foreign asset exposure, well below the 63% peak of 2020.

The connection to precious metals is not mechanical but it is real. Capital that cannot comfortably remain in carry trade positions — because the rate differential is shrinking and the yen could appreciate sharply at any moment — seeks alternatives. Gold rose approximately 60% in 2025 (LSEG, January 2026). Silver futures surged 7.8% to $109.26 per ounce in late January 2026 (Stocktwits). Gold hit a record high of $5,024 per ounce. When the carry trade eventually unwinds in earnest — BCA Research argues it will be triggered by falling asset prices rather than rate hikes, as in 2008, 2015, and 2020 — the resulting volatility typically drives safe-haven flows. Gold and silver are the oldest safe havens in the world.

The Advisor Perspectives analysis of February 2026 offers a more measured view: Japan is normalising after decades of extraordinary policy, and the carry trade risks, while real, should not be confused with an imminent crisis. The 10-year Japanese government bond now offers higher yields than currency-hedged 10-year bonds in the U.S., U.K., and Germany — a structural shift that changes the incentive to hold foreign assets. The carry trade is not collapsing. It is, slowly and unevenly, becoming less attractive. That process, however gradual, redirects capital. Some of it finds its way into metal.

The Exchange Goes Dark — On Contract Expiry Day

At 12:11 p.m. Central Time on February 26, 2026, CME Group's Global Command Center flagged a system failure across the Globex electronic trading platform. Four minutes later, the exchange confirmed a full trading halt across metals and natural gas futures and options. Natural gas markets returned after approximately 50 minutes. Gold and copper contracts did not reopen until approximately 1:45 p.m. — 94 minutes of darkness. All standard day orders and good-till-date orders placed for the session were wiped entirely. The competing Intercontinental Exchange was unaffected throughout.

The timing was not incidental. February 26 was contract expiry day for the March natural gas futures contract — one of the most sensitive days in the trading calendar, when traders roll positions forward into the next month. Silver had, during the session, tested $91 per ounce intraday — the upper boundary of February's consolidation range and a level that analysts identified as the gate to $100 and beyond. When the halt ended, silver pulled back below $90. Whether the outage contributed to that reversal is, as Finance Magnates noted, "hard to say with certainty." What is certain is that price discovery in metals was suspended at precisely the moment it mattered most.

It was not an isolated event. In November 2025, a cooling failure at a CyrusOne data centre knocked out CME systems across foreign exchange, bonds, equities, and commodities for several hours. In January 2026, the New York Mercantile Exchange — owned by CME — imposed an unusual two-minute halt during the natural gas market close, skewing the settlement price. Earlier in February 2026, CME reported delays in publishing metals settlement prices. The February 26 Globex outage was the fourth significant system failure in four months.

CME Group is simultaneously riding record trading volumes — its natural gas complex hit an all-time single-day record of more than 2.5 million contracts on January 20, 2026, and metals volumes jumped 18% in the same period, with micro silver futures setting a new daily record of 715,111 contracts. The exchange has switched from fixed-dollar to percentage-based margin requirements for precious metals as prices surged to records. The infrastructure is under stress from the same forces it is supposed to price. CME shares fell approximately 4% on February 26.

JPMorgan, $920 Million, and the Arbitrage Flight

On September 29, 2020, the U.S. Commodity Futures Trading Commission ordered JPMorgan Chase to pay $920 million — the largest monetary settlement in the agency's history — for years of spoofing and manipulation in precious metals and U.S. Treasury futures. The Department of Justice simultaneously announced a criminal monetary penalty. The bank admitted the findings. CFTC Commissioner Dan Berkovitz described the conduct as "a massive, multiyear scheme to manipulate the market for precious metals futures contracts." JPMorgan Securities also admitted findings to the SEC and paid an additional $35 million in disgorgement and civil penalties.

The settlement confirmed what many in the silver community had alleged for more than a decade: that the dominant dealer in the COMEX precious metals market had systematically placed and cancelled large orders to move prices in its favour. The fine was paid. The bank remained the dominant dealer, vault operator, and derivatives house on COMEX.

In February 2025, JPMorgan was identified by the Wall Street Journal as one of the two largest participants in an extraordinary arbitrage trade: physically transporting gold bars from London to New York by commercial aircraft to capitalise on a $20-per-ounce COMEX premium driven by tariff fears. The bank was set to deliver more than $4 billion worth of gold bars to New York. The Bank of England's vault wait times had ballooned from a few days to eight weeks. U.S. gold inventories doubled from approximately $50 billion to $106 billion in the months following the November 2024 election.

The arbitrage trade illustrates the mechanics of the London-COMEX divergence precisely. The banks lend gold held in London, hedge by selling COMEX futures, and generate revenue from the interest differential. When COMEX futures trade at a large premium over London spot — because of tariff risk, delivery stress, or both — the cost of buying back those futures exceeds the cost of physically transporting the metal. So the metal moves. The question, in a market where registered inventory has fallen 64% and delivery stress is rising, is how long that mechanism can continue to function.

Silver Is Now a Critical Mineral — and the Export Ban Risk Is Real

In November 2025, the U.S. Geological Survey added silver to the official critical minerals list, alongside boron, copper, lead, metallurgical coal, phosphate, potash, rhenium, silicon, and uranium. On January 14, 2026, President Trump signed an executive order on "Adjusting Imports of Processed Critical Minerals and Their Derivative Products into the United States." White & Case noted that the order invoked Section 232 authority — the same legal mechanism used to impose 25% tariffs on steel and aluminium imports.

The August 2025 gold tariff episode demonstrated how quickly the market responds to export restriction signals. On August 8, 2025, the Financial Times reported that U.S. Customs had classified one-kilogram gold bars as subject to a 39% tariff on Swiss imports. COMEX December gold futures surged to a premium of more than $125 per ounce above the London spot price within hours. UBS noted that if the tariff held, the COMEX-London premium would widen further, making arbitrage increasingly difficult. President Trump reversed the ruling three days later — but the episode lasted long enough to demonstrate the mechanism.

The legal infrastructure for restricting silver exports now exists. Whether it is used is a political decision. But the combination of silver's new critical mineral status, the Section 232 authority invoked by the January 2026 executive order, and the demonstrated willingness of the administration to use tariffs as a market-moving instrument creates a risk that was not present two years ago. If the U.S. restricts silver exports — or if the market believes it might — the EFP mechanism breaks down. London-based shorts face inability to source deliverable metal. The paper-physical divergence becomes acute.

This is not a prediction. It is a description of the risk landscape as it currently exists, documented and sourced. The August 2025 episode lasted 72 hours and moved the gold market by $125 per ounce. Silver's registered inventory is 64% below its 2020 peak. The yen carry trade is stagnating. The CME went dark on contract expiry day. These are not unrelated events. They are different facets of the same structural question: what happens when the paper market and the physical market tell different stories about the same metal, and the gap between them keeps widening?

Key Events, 2020–2026

Five Numbers That Matter

What This Means for the Rest of Us

I am not a financial advisor. I am a magazine editor who reads widely and cites his sources. What I can tell you is that the story of gold and silver in 2025 and 2026 is not the story that gets told on social media — the leaked memos, the imminent defaults, the $400 silver predictions. Those narratives are designed to sell something.

The real story is quieter and, in some ways, more interesting. It is the story of two markets — paper and physical — that have been drifting apart for years, accelerated by a pandemic, a tariff war, a central bank finally raising rates after three decades, and a series of infrastructure failures at the world's largest commodity exchange. None of these things, individually, is a crisis. Together, they describe a market under structural stress.

The yen carry trade is the macro context that ties it together. A trillion dollars of capital borrowed in yen and invested in higher-yielding assets is not going to unwind quietly. When it moves — and BCA Research argues it will move when asset prices fall, not when rates rise — it will create volatility. Volatility drives safe-haven flows. Gold and silver are the oldest safe havens in the world.

Whether you own precious metals or not, this is a story worth understanding. The gap between paper and physical is a gap between what the market says something is worth and what it actually costs to hold it in your hand. That gap has been widening. The question is not whether it will close — it always does. The question is how.

— Gerald

Cited Sources

Disclaimer: This article is for informational and editorial purposes only. It does not constitute financial advice. All facts are sourced from publicly available documents, regulatory filings, and credible news organisations. Readers should conduct their own research and consult qualified financial advisors before making investment decisions.