Gold and silver are going wild – how speculation disrupts the currency market

Silver futures on the SHFE yesterday provided further evidence of how extreme the precious metals price movements have become in 2025. After an early morning increase of 5%, prices plummeted to -5% – intraday volatility reached 10%. However, this is just a fragment of a larger story of speculative frenzy characterizing this year’s commodity markets, which has led to significant capital flows out of currency markets.

The Extreme Will of Speculators in the Metal Market

The year-to-date results of precious metals speak for themselves: gold has risen by 70%, copper by 45%, but silver has dominated all – a 170% increase. In the first half of the year, silver grew more slowly than gold, but in the second half, the market turned fully speculative. Genuine shortages and a desire to correct previous gains made the small silver market an arena for intense financial bets.

Silver options volatility reached a frightening 70% – by comparison, traditional currency markets seem extremely calm during such times. Although the SHFE repeatedly tightened margin requirements, and silver exchange-traded funds (LOF) began restricting new purchases (creating an absurd 50% premium), the wave of speculation persists. Each contract generates profits or losses of up to 50,000 – the scale of risk is enormous.

How Capital Flows Disrupt Currency Balance

Traditional analytical frameworks – based on interest rate mechanisms, safe assets, or correlation with the dollar – no longer explain such extremes. Although the Fed continues to cut interest rates, real rates remain in a restrictive range, and the correlation of gold and silver with currency conditions is clearly weakening. The dollar index chart shows how the link between traditional catalysts and metal prices is diminishing.

But here emerges a key mechanism: international arbitrage. When the price of international gold (XAU) is higher than on the SHFE, arbitrageurs sell gold on foreign markets, exchange dollars for yuan, and buy gold on the domestic exchange. This operation supplies currency to the market – a significant capital flow. Conversely, when prices abroad are lower, foreign currency demand arises.

These operations may seem technical, but they have a direct impact on USDCNY volatility. The difference between domestic and foreign gold prices serves as an economic signal for capital flows – every trader, even using advanced analysis tools, must consider these arbitrage opportunities.

Change in Character – From Commodity to Speculation

These are no longer market moves driven by economic fundamentals or industrial consumption. Precious metals, led by silver, are transforming from raw materials into purely speculative instruments. The low liquidity of the silver market relative to the massive transaction volumes creates an ideal scenario for extreme fluctuations.

Capital flows from arbitrage between domestic and foreign markets constitute one of the unexplored channels influencing the currency market. While traditional economic indicators lose predictive power, movements in gold and silver markets force actual capital rotation and affect the supply and demand of the currency.

The precious metals markets show how quickly seemingly stable markets can turn into arenas of speculative chaos – all reflected directly in currency volatility.