Silver and Palladium: How the Incredible Rise of Metals is Changing the Game in the Currency Market

Morning FX If you think the stock market is volatile, you haven’t observed what has happened with precious metals in 2025. Silver surged by 170%, gold by 70%, and their market chaos has created a new dynamic that is beginning to shift the sands in the currency market.

When Precious Metals Start Writing Their Own History

Yesterday’s scenario was revealing: the SHFE silver futures contract 2602 began with a morning jump of 5%, only to crash by 5% shortly after. The total amplitude? An astonishing 10% in one day. But that’s already the norm. Palladium and platinum danced to the same rhythm, with capital rotating between metals like a ping-pong ball.

If you look at the annual change chart, you’ll see something that hasn’t been seen in the last 50 years. Silver no longer relies on gold for support – instead, it is breaking out on its own. In the first half of the year, it was cautious, but since July, it has been pure speculative madness. The small silver market has become the main arena where huge capital battles over margins.

Option Volatility Reaches 70% – This Is No Longer Fundamental Analysis

The SHFE exchange has repeatedly raised margin requirements. Profit or loss on a single contract is now 50,000. The (LOF) ETF fund for silver has started to restrict purchases, leading to an absurd premium of 50%. Yet, speculation has not subsided.

Volatility expressed through options reached 70%, while the currency market seems to be a calm lake. This shows that investors are no longer playing based on fundamentals – everyone is looking at other things.

What Does This Have to Do with the Dollar Exchange Rate?

Here’s the interesting part. Traditional analysis of metals has stopped explaining these moves. The Fed keeps cutting interest rates, but real rates still live in a restrictive world. The correlation between gold, silver, and the dollar is decreasing. Interestingly: looking at the chart, you can see how the strength of the relationship between gold prices and the dollar index gradually weakens.

But wait – there is something deeper here.

Gold Arbitrage Disrupts the Entire Currency Market Dynamic

This is the core issue. International gold (XAU) and gold on SHFE are two completely different games. When the foreign price rises faster, arbitrageurs sell international gold for dollars, exchange it domestically for yuan, and jump onto SHFE. The effect? Delivery of dollars to the market. When the foreign price falls? The opposite – demand for currencies appears.

These operations prevent price differences between markets but also create real movements in USDCNY. Capital flows from arbitrage, although smaller than traditional trade flows, influence the demand and supply of currencies.

Summary: Metals Are No Longer What They Used to Be

By the end of the year, precious metals underwent their final transformation – from raw materials to objects of speculation. Silver, gold, palladium, platinum – all together. Traditional analysis tools failed. However, capital flows generated by arbitrage still play a leading role in USDCNY changes and overall currency market dynamics.