Inflation heats up, central banks turn hawkish! Is the wind changing for gold prices?
Silver stages a dramatic 'inverted V'! Is it a topping signal or aggressive shakeout? Inside, find the response playbook!
Yesterday, silver staged a textbook 'incredible inverted V' move in front of global investors:Silver futures prices recorded the strongest intraday rally since 2008, surging significantly to nearly $118 per ounce, with gains reaching as high as 14%. However, they swiftly gave back almost all of the day's gains, ultimately closing with an increase of less than 1%.
$iShares Silver Trust (SLV.US)$ Yesterday's options trading volume even surpassed $Invesco QQQ Trust (QQQ.US)$ , ranking second in the entire market. Following the sharp volatility, silver began a strong rebound today, once again testing the $110 per ounce level.
What are the driving factors behind this epic move, does it signal the end of the silver bull market? How should investors respond?
The tug-of-war between bulls and bears behind the epic volatility
Starting from early 2026, escalating geopolitical tensions in places like Venezuela, Iran, and Greenland acted as direct catalysts for the silver market. The restructuring of the monetary order, along with demand driven by new industries such as AI, has placed silver, which possesses both 'industrial and financial' attributes, directly in the spotlight. In January, silver's market capitalization surpassed $NVIDIA (NVDA.US)$ to become the world's second-largest asset, achieving a 'summit meeting' with gold.
After several days of momentum-driven rallies fueled by chasing-the-rally sentiment, the market had become extremely fragile. Silver prices had surged more than 50% in less than a month at the start of 2026, with cumulative gains since 2025 being even more astonishing. After repeatedly breaking historical highs, a large number of profitable positions accumulated a huge desire to cash out.
Looking at the position holdings of the main contracts in the futures market, the holding amount in 2026 far exceeded previous years, ignoring seasonal fluctuation patterns, reflecting extreme market optimism.The crowding level of bullish strategies in silver has significantly surpassed that of gold, with volatility rising to historic highs. After any surge, the pressure to take profits is immense. Following yesterday’s breakout above $110 per ounce, many short-term bulls chose to close their positions to lock in profits, resulting in a stampede-like sell-off.
In this round of silver's 'stunning inverted V' price movement,the options market, especially the frenzied trading of call options, also played a crucial 'amplifier' role.This buying of options, driven by retail and some institutional investors, not only amplified the momentum of price increases but also significantly heightened market volatility and fragility.
Since the end of 2025, trading activity in the silver-related options market has been exceptionally hot, reaching historic levels. Data shows that the trading volume of call options on the world’s largest silver ETF $iShares Silver Trust (SLV.US)$ has surged dramatically, nearing the high levels seen during the retail trading frenzy triggered by Reddit forums in 2021.
That year, when retail investors took on Wall Street, besides the famous GME, many users also shifted their 'short squeeze' strategy to the silver market. At that time, there was an opinion that the silver price was artificially suppressed by large banks, prompting a call for retail investors to buy silver ETFs to push prices higher, achieving the feat of driving up silver prices by 11% in one day in 2021.
When investors aggressively buy calls, the market makers who sell these options (usually large investment banks) face significant risk exposure. To hedge against this risk, market makers must purchase a corresponding amount of silver assets in the futures or spot markets.This passive buying conducted for hedging purposes created strong and sustained market buying pressure, directly pushing up the price of silver and forming a classic feedback loop where 'option trading drives spot prices.'
However, this also made the market structure abnormally fragile.Once the expectations driving the rise are proven false or weakened, or if exchanges implement measures such as increasing margin requirements, the unwinding of long positions in the options market, the collapse of volatility, and profit-taking in the futures market will resonate with each other, which is the key force behind the dramatic reversal of the 'stunning inverted V'.
Technical patterns sound the alarm! Is the bull market over?
From a technical analysis perspective, the candlestick on January 26, with an extremely long upper shadow and a small body, forms a typical 'Shooting Star' pattern. This pattern typically appears after a significant uptrend, characterized by a small candlestick body, an upper shadow at least twice the length of the body, and little to no lower shadow.
Its formation indicates that after the opening, the bulls pushed strongly upward but encountered heavy selling pressure by the close, retreating near the opening price, suggesting a high likelihood of a market top. If this pattern is accompanied by huge trading volume, the signal for a top reversal becomes stronger.
However, it's important to note that this pattern mainly indicates medium- to short-term market trends.Long-time followers of OptionSir may recall that gold formed a 'Shooting Star' pattern last October after peaking and pulling back. At the time, we analyzed it and concluded that short-term volatility did not alter the long-term trend, which might have been a good time to position ourselves.
Interested fellow investors can revisit that analysis. We also welcome everyone to follow OptionSir's account for more investment knowledge exchange~
Let's return to silver. Despite overheated short-term speculative sentiment, the core long-term logic supporting this silver bull market has not yet been disproven. Over the next five years, the key industrial demand for silver will exhibit a clear 'two increases and one decrease' pattern, with growth momentum far outweighing the decline.
The photovoltaic industry is currently the dominant force. Although 'silver reduction' technologies (such as silver-coated copper and electroplated copper) are long-term trends and are already underway, they face barriers such as mass production stability, resulting in slow progress. Driven by the rapid growth in installations, the total demand for silver used in photovoltaics is expected to remain strong.
The AI revolution has brought about a 'silver-intensive' demand for computing power infrastructure.The silver consumption of an AI server cluster is 2-3 times that of a traditional data center, with applications in GPU packaging, high-speed interconnects, and liquid cooling systems.At the same time, the semiconductor packaging process consumes approximately 1,200-1,500 tons of silver annually. With the development of advanced packaging technologies like Chiplet, demand is expected to continue growing.
In the medical field, due to digital X-rays replacing traditional film, there is a structural decline in silver demand for medical use, but its impact on overall demand remains relatively small.
On the supply side, since most silver exists as a by-product of metals like copper, lead, and zinc, its production is constrained by the investment cycle of primary metal mines, showing very low elasticity. The market has experienced supply shortages for multiple consecutive years, and this trend is expected to continue into 2026.
Silver is transitioning from being a common industrial metal and investment product to becoming a strategic national reserve asset. Market expectations of interest rate cuts by major global central banks (especially the Federal Reserve), along with long-term concerns about the credibility of the US dollar system, continue to provide macro-level support for precious metals, including silver.
Therefore, regarding the question 'Is the rally over?' the answer is likely no. A more accurate description would be:The phase of extreme one-sided surges may be temporarily over, as the market needs to digest the pressure from the retreat of speculative fervor, and prices could enter a period of wide-range volatility. However, in the medium to long term, any significant decline is likely to encounter support stemming from genuine industrial gaps and strategic reserve demand.
Options deployment strategy
When the market is at the intersection of 'short-term adjustment pressure' and 'long-term bullish logic,' the importance of options becomes evident.Compared to silver ETFs, which only allow for one-way betting, deploying an options strategy enables directional betting, volatility capture, and risk hedging, making it a better solution for navigating the current complex market conditions.
Following yesterday's significant fluctuations, the Futubull options analysis tool shows that $iShares Silver Trust (SLV.US)$ the implied volatility (IV) is at an extremely high historical level. This makes directly buying call/put options for one-way betting uneconomical, and investors can design different options trading strategies based on scenarios.
(1) Moderately bullish
Consider deploying a Bull Call Spread by simultaneously buying a call option with a lower strike price and selling a call option with the same expiration date but a higher strike price. The premium collected from selling the option can partially offset the cost of purchasing the option.
(The illustration is for explanatory purposes only and does not constitute any investment advice or guarantee.)
(2) Looking to enter opportunistically
Consider selling out-of-the-money put options (Cash-Secured Put) to earn premiums. If the stock price remains above the strike price, the option expires worthless, and the investor keeps the premium as profit. If the stock price falls below the strike price, the option is exercised, and the investor must buy the stock at the strike price.
(3) Existing positions, generating extra income amid high volatility
While holding the underlying asset, investors can earn premiums by selling call options when prices stagnate or fluctuate. If the stock price rises above the strike price, the asset can be sold at the target price.
For instance, suppose you hold 100 shares of SLV and believe that the silver price won't rise to $120 per ounce (corresponding to an SLV price of approximately $109) in the short term. In that case, you can sell a call option with a strike price of $109 that expires in a week.
If the silver price is below $120 per ounce at expiration, the option will expire worthless, and you will pocket the premium. If the price exceeds this level, you can sell these 100 shares at the strike price, locking in profits but also missing out on higher gains.
Here's a summary of silver ETFs listed on US stock exchanges. Besides SLV, there are other ETFs available:
It’s important to note that leveraged silver ETFs are designed primarily as tools for short-term traders rather than long-term investments. The goal of leveraged ETFs is to provide a multiple (e.g., 2x or 3x) of the daily performance of the underlying index. To achieve this, the fund must rebalance at the end of each trading day.
In volatile markets, this daily adjustment generates 'volatility decay,' also known as the 'compounding effect.' For example, if silver prices fluctuate up and down over two consecutive days and the index value remains unchanged, the net asset value (NAV) of the leveraged ETF might still incur losses due to daily magnification.The longer the holding period, the greater the potential volatility-induced loss and deviation from the expected long-term multiple.
Moreover, silver itself is already a highly volatile asset. When combined with leverage, its fluctuations will be significantly amplified, requiring even stronger risk tolerance and discipline in stop-loss strategies. Many silver investors who experienced last night's extreme volatility likely had trouble sleeping.
Let me introduce you to Futubull.Profit-taking and stop-loss ordersOne of its core values is allowing you to set a clear 'exit plan' for the trade simultaneously with opening a position, enabling you to participate more confidently in this major precious metals rally while keeping risks relatively controlled.
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Disclaimer
This content does not constitute any offer, solicitation, recommendation, opinion, or guarantee of any securities, financial products, or tools. The risk of loss in buying and selling options can be substantial. In some cases, your losses may exceed the initial margin amount deposited. Even if you set contingent orders, such as 'stop-loss' or 'limit' orders, these may not necessarily prevent losses. Market conditions may make these orders unexecutable. You might be required to deposit additional margin within a short period. If you fail to provide the required amount within the specified time, your open positions may be liquidated. However, you will still be responsible for any account deficit arising from this. Therefore, before trading, you should study and understand options and carefully consider whether such trading suits you based on your financial situation and investment objectives. If you trade options, you should be familiar with the procedures upon exercising options and at expiration, as well as your rights and obligations when exercising options and at expiration.
Risk Disclaimer: The above content only represents the author's view. It does not represent any position or investment advice of Futu. Futu makes no representation or warranty.Read more
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