Can small players shake up the market? The case of silver and gold on SHFE

The year 2025 demonstrated how brutal speculative waves can be on commodity markets. Silver outperformed all expectations – a 170% increase year-over-year (compared to gold +70%, copper +45%) making it the most popular instrument among investors seeking asset safety exposure. But behind this dramatic trajectory lies something much more interesting: the largest speculative players are now focusing on the relatively small silver market.

Extreme fluctuations as the norm

Yesterday’s session on silver futures 2602 (SHFE) was an illustration of this chaos – an initial 5% rise turned into a -5% crash, generating ten percent volatility within a single day. This is not an anomaly. The volatility of this instrument reached 70% from an options perspective, which is astronomical compared to traditional currency markets.

Platinum and palladium accompanied silver in this dance, reflecting the rotation of capital between precious metals. Even when the SHFE exchange repeatedly raised margin requirements (reaching gains/losses of 50,000 yuan per contract) and when investment funds began to limit new purchases, the speculative appetite did not weaken.

Why silver?

The first half of the year was relatively calm for the white metal – silver’s growth remained in the shadow of gold’s rise. Everything changed in the second half of the year. The actual supply shortage combined with the need to correct previous gains turned the small silver segment into the arena of the most intense speculation. It’s a simple matter of mathematics: small trading volumes amplify every movement of capital.

Change in correlation with currency markets

Traditional analytical models are failing to explain these moves. Although the Fed continues to cut interest rates, real rates remain in restrictive territory. The correlation of gold and silver with the dollar index is clearly weakening – this means that the mechanisms traditionally linking precious metals with currency markets are losing significance under speculative pressure.

Arbitrage and capital flows

So where does the impact on the (USDCNY) currency market manifest? In micro-scale arbitrage operations. International gold (XAU) and gold on SHFE are two separate markets. When foreign prices rise higher, arbitrageurs sell XAU (earning dollars), exchange them for yuan, and buy gold on SHFE – creating a supply pressure on the currency market. The reverse scenario generates demand for foreign currencies. Capital flows from these operations directly influence the volatility of the USDCNY exchange rate.

The end of the classical approach

The end of the year brought a groundbreaking shift in the character of the precious metals market – a move from fundamentals (actual supply, industry demand) to purely speculative sentiment. Silver, operating on a small market, has become the catalyst for this transformation. While traditional analytical frameworks have lost their explanatory power, capital flows from arbitrage remain the only real channel influencing currency supply and demand – especially for the volatility on the USDCNY pair.