Why silver will reach a new ATH. By Karel Mercx @KarelMercx. “The collapse in silver from $121 to $64 did not signal the end of a bull market. It marked the forced exit of reckless cowboys in the futures market.”

On the COMEX, some traders control a full silver position with only five cents of their own capital and ninety-five cents borrowed. That is roughly 19 times leverage. When volatility rises and margins increase, positions built on that kind of leverage simply cannot survive.

If silver moves against them, these traders do not just lose money, they are forced out. Margin calls trigger liquidations, liquidations push prices lower, and lower prices trigger even more liquidations. What follows is not a collapse in physical demand but a mechanical flush of over-leveraged participants.

The recent decline in silver should therefore be seen for what it is: not a breakdown in fundamentals, but a structural reset. Once the reckless leverage is gone, the market is left in much stronger hands.

Commodity markets behave differently from equity markets, especially during periods of sharp price moves. In commodities, rising prices often increase urgency rather than fear. Buyers worry about securing supply at higher prices and volatility rises as positions become more sensitive to margin requirements.

When volatility increases, exchanges raise margin requirements to reduce systemic risk. That process is mechanical and applies in both directions. It is not a sign of manipulation but a standard feature of leveraged futures markets.

With 19x leverage on their own capital, a speculator doesn’t just blow up their own account when the market moves the wrong way; the losses end up elsewhere in the system as well. I have no interest in paying for others. That’s why it is healthy that when volatility rises, margin requirements are increased.

It continues to amaze me how quickly things unravel once the ratio shifts from 5 cents of own capital and 95 cents borrowed to 8 cents of own capital and 92 cents borrowed. Many speculators immediately run into financial trouble and are forced to sell. Margins then moved higher to 11%, then 15%, and now 18%. Anyone who had been far too aggressive with futures has been stopped out. That is why I say the current decline was caused by reckless cowboys.

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Link to source: https://x.com/KarelMercx/status/2020166396605252069?s=20