Falls with the trend but won't rise with it! Silver is in trouble.

Title context: Falls with the trend but won't rise with it! Silver is in trouble. Text: The silver market is caught in a rare double bind: bullish news cannot push prices higher, while bearish news suppresses them with precision. Under the dual squeeze of a strengthening dollar and rising real interest rates, silver's industrial demand logic is being systematically suppressed by macro forces, speculative capital is withdrawing on a large scale, and short-selling power has reached a peak in recent years. During Friday's Asian session, silver prices fell by more than 2% at one point to $58.70 per ounce, while gold fell only slightly by 0.4% to $4,120 over the same period. Robert Quinn, an analyst on Goldman Sachs' commodities trading desk who tracks Comex metals fund flows, titled his latest report "Silver Futures: Stuck," pointing directly at the core of silver's current predicament: the AI and CECEP Solar Energy demand logic supporting silver's rise is materializing, but the market is unmoved because the upward forces from the dollar and real interest rates are stronger. The direct consequence of this situation is that silver prices have been cut in half from a January high above $115 to below $60, and the scale of speculative net longs has shrunk from about $24 billion to about $12 billion. At the same time, an obvious divergence has emerged between the physical silver market and the paper marketChina is buying on dips, while short positions in the paper market have climbed to their highest level in at least a year. Speculative funds sold $1.6 billion in a single week, the largest scale this year Fund flow data reveals the direct reason for the pressure on the silver market. Citing the CFTC positioning report, Quinn said that in the week ended September 29, managed money, other categories, and non-reportable accounts together sold about $1.6 billion in silver futures, the largest single-week selloff since February this year. Notably, this selloff was not simply long liquidation, but showed a more pessimistic structure: about $800 million came from long liquidation, while another $800 million came from newly established short positions. From a longer time perspective, managed money's net long position in silver is currently down by 29,500 contracts from a year earlier. The scale of speculative net longs has shrunk from a January peak of about $24 billion to about $12 billion, a decline of nearly half, closely matching silver's move from above $115 to below $60. Against this backdrop, the market's earlier optimistic bets have almost evaporated. According to ZeroHedge, on August 21 the Goldman Sachs trading desk recorded clients buying large amounts of three-month digital options on silver with a strike price of $90 per ouncemeaning silver would need to gain 52% in about six weeks for the options to pay out. Bullish logic materializes, but prices fall instead The most puzzling phenomenon in silver's current predicament is the severe divergence between its industrial demand logic and price action. Quinn tracks two equity baskets as real-time "barometers" of silver's structural demand: the Goldman Sachs data center basket (a proxy for AI infrastructure construction) and the CECEP Solar Energy basket (photovoltaics is one of silver's largest industrial uses). Over the past six months, these two baskets have maintained a positive correlation with changes in managed money's silver longs. However, between September 29 and October 7, the data center basket rose 4.2% and the CECEP Solar Energy basket rose 2.4%. Based on historical patterns, this should have attracted speculative funds back into silver. But the result was the oppositesilver fell 1.4% over the same period. The reason is that during the same period, U.S. real interest rates edged higher and the dollar index rose 0.8% to 102.5, the highest level in the past six months. Quinn noted that historically, an environment of a stronger dollar and rising real rates has often coincided with managed money long liquidation. As the chart below shows, since August, managed money long positions and the dollar index (inverted) have moved almost point for point in sync, with the scale of longs falling from about $6.9 billion in early September to about $5 billion. This forms a mirror image of the situation in mid-September. At that time, in a report titled "Silver Futures: Hawkish Enough?", Quinn recorded that the data center basket plunged 6.9% after industry leaders questioned the pace of AI expansion, and silver subsequently fell 4.7%. At that time, the AI logic was the problem; now the AI logic is intact, yet silver still cannot rise. This clearly shows that what dominates silver's moves is the Federal Reserve and the dollar, not fundamentals. Options market: bearish sentiment rises to a two-year extreme, CTA shorts hit a new high for the year Structural changes in the options market further confirm the sharp deterioration in market sentiment. Quinn noted that the standardized 25 delta put/call skew has risen to the top 2% of its two-year percentile range, meaning the premium investors pay for downside protection in silver, relative to upside options, is close to its highest level in two years. At the same time, three-month implied volatility has plunged from a January peak of more than 100% to about 33%, the lowest level in nearly a year. This combination sends a clear signal: the market generally expects silver not to move sharply, while the few participants expecting volatility are betting on the downside. Position changes among trend-following funds (CTAs) are equally striking. According to Goldman Sachs' futures strategist framework, CTA net longs reversed from about $1.2 billion in early September to about -$1.4 billion in net shorts in just five weeks, a position swing of about $2.6 billion, with the scale of net shorts the highest in at least a year. Quinn's historical data provides a reference: on August 6, managed money net longs were at the 3rd percentile of their two-year range, short-term momentum then flipped, triggering CTA short covering. After that, from July 28 to September 8, the December silver contract rose 15.2%, and managed money bought a net $1.8 billion, mainly by establishing new longs. The current CTA short position has already exceeded the level at that time. The dollar is the last line of defense, but Goldman Sachs' FX team issues a warning When can silver break free? Quinn points to the dollar's trajectory, but attaches an important warning. Quinn wrote in the report: "Goldman Sachs FX research believes that one pillar of silver's headwinddollar upsidemay be stalling. Given that positioning in several currency pairs is already clearly stretched, and that the Fed's recent communication has emphasized a patient approach to policy tightening, the team is cautious about the prospect of continued near-term dollar strength." Goldman Sachs' FX team, including Stuart Jenkins and Michael Cahill, noted in a report titled "US Outperformance and the Dollar" that the dollar's September rally mainly stemmed from the relative strength of U.S. equities. The trade-weighted dollar has just hit a new high for the year, but against the backdrop of stretched dollar positioning and dovish Fed communication, they are cautious about continued near-term dollar strength. However, new developments this week once again pressured silver: Brent crude surged more than 5% to above $105 after reports that the White House asked the Pentagon to draw up strike plans against Iran, the 10-year U.S. Treasury yield moved toward 5.3%, and the dollar strengthened again. In addition, the FOMC meeting minutes released on Wednesday showed that "most" officials believed one more rate hike this year "could be appropriate," and Goldman Sachs economists still expect a December hike. This is exactly the "macro headwind" Quinn referred to, and it will not dissipate before the midterm elections. Physical market diverges from paper market, China buys on dips While paper silver is stuck, the physical market presents a completely different picture. Goldman Sachs commodities strategists Lina Thomas and Daan Struyven warned last month that tariff concerns caused a large amount of silver to be pulled into the United States in advance. "We expect most of the metal flowing into the U.S. to remain there, leading to tighter available inventories outside the U.S. Once investor demand recovers, this could repeat the volatile market conditions from the second half of 2025 to the first half of 2026." The arbitrage gap between New York and London has begun to appearaccording to ZeroHedge on social platform X, citing JPMorgan's Willig, traders' willingness to conduct cross-market trades between New York and London silver is declining. At the same time, ETF flows overall show buying in gold and selling in silver. On Thursday, the Goldman Sachs trading desk relayed a noteworthy signal from Asia: "China bought on dips overnight." The desk characterized "Chinese physical buying" as a key support and posed a blunt question: "If you think rates have stopped falling, why not buy precious metals?" At the current gold-silver ratio of about 70, further widened from 66 in early September, silver continues to weaken relative to gold, and this cheapness itself may constitute a potential mean-reversion force. Bottom line: shorts are near their limit, asymmetry points upward Taken together with the four core charts in Goldman Sachs' Quinn report, the current positioning structure in the silver market is close to a historical extreme: Speculative funds: $1.6 billion sold in a single week, half of it newly established shorts, with net longs about half the January peak; CTA: net shorts of about -$1.4 billion, the highest in at least a year; Options: put skew in the top 2% of its two-year percentile range, implied volatility near a one-year low; Fundamentals: the AI and CECEP Solar Energy demand barometers are rising, and physical inventories outside the U.S. are tightening. The last time Quinn found silver positioning so "washed out" was at the end of July, after which silver rose 15% in six weeks. Quinn believes that shorts currently hold three cards: the dollar, real interest rates, and escalating tensions with Iran. If Brent crude continues to climb, another probe by silver toward the mid-$50s is not impossible. But from the perspective of asymmetry, when CTA shorts reach an extreme, option skew is at an extreme, and Goldman Sachs' FX team warns about the dollar's trajectory, silver does not need good news to break freeit only needs bad news to stop intensifying. And when the 30-year U.S. Treasury yield rises to 5.67% and the Fed openly discusses how many more rate hikes the economy can withstand, the bad news in the bond market may eventually turn into good news for every asset that "cannot be printed." This article is reprinted from Wall Street CN, author: Dong Jing; GMTEight editor: Zheng Yuyang.