The storm on metals: when arbitrage disrupts the currency market

Morning FX – The past few months have transformed precious metals from simple safe-haven assets into battlegrounds for speculative trading. Gold, silver, and copper – elements of the periodic table that float between traditional economic motivations and pure bullish speculation – are setting the pace for the entire global currency system.

The Capital Assault: Numbers That Are Frightening

The figures speak for themselves. In 2025, gold gained 70%, copper 45%, but the real star is silver with an impressive 170% rally. Yet these annual numbers only scratch the surface of much wilder and localized volatility.

Just look at the short-term contract 2602 for silver on the Shanghai Futures Exchange: yesterday morning it rose 5%, then completely reversed course, plunging to -5% within the same session. An intraday fluctuation of 10% that represents only a small oscillation in silver’s fifty-year saga – its largest increase ever recorded.

Platinum and palladium joined the bearish dance, with capital bouncing from one element of the periodic table to another in search of the next opportunity. The Shanghai Futures Exchange repeatedly raised margin requirements to contain the chaos; today, profit or loss on a single contract approaches 50,000 yuan. Even silver LOF funds imposed purchase restrictions, with an unusual 50% premium, but the speculative machine keeps rolling.

When Theory No Longer Explains Reality

Traditional metal analysis models have lost all predictive power. Interest rates continue to fall under the Federal Reserve’s pressure, real rates remain restrictive, yet the correlation between gold, silver, and the currency market has dissolved.

It’s no longer a story of dollar anchoring or safe-haven expectations. The search for security, inflation dynamics, even rate projections – all variables that once explained precious metals prices – suddenly prove insufficient in the face of volatility approaching 70% on silver options, a level that makes traditional forex market calm look pale.

The Real Mechanism: How Arbitrage Distorts the Exchange Rate

The key lies in capital flows and arbitrage between onshore and offshore gold. International (XAU) gold and Shanghai gold operate in two completely different markets, creating opportunities for arbitrage.

When offshore gold prices rise, arbitrageurs sell international gold to obtain dollars, exchange these dollars for renminbi at home, and buy gold locally. This creates pressure toward renminbi conversion and influences the USDCNY exchange rate. Conversely, when offshore gold falls, pressure emerges to buy foreign currency.

These movements are not random: they systematically eliminate the price differential between international gold and Shanghai gold, but in doing so, they alter the demand and supply of foreign currency in the forex market, introducing volatility where order once reigned.

From Asset to Instrument: The Metamorphosis

What has happened? By the end of the year, precious metals – driven by the speculative frenzy on silver – underwent a profound transformation. They are no longer consumption goods or inflation hedges, but pure speculative instruments, with capital flows ignoring traditional economic fundamentals.

Gold, silver, and copper, elements of the periodic table so different in their physical properties, are now united by a single force: capital fleeing into volatility. The models that explained their behavior have proven to be relics of a previous era, and the currency market bears the collateral consequences.