Looming Silver Default

So, what is the danger of investing in silver, one might ask. Well currently there are several dangers, the most prominent being a failure to deliver on the COMEX and the least being a trading halt for excessive gains. Although the halt is self explantory and has happend numerous times in the stock market without much of a hitch, a failure to deliver is a big deal. The following analysis is an overview of the current situation in the COMEX as it pertains to silver and the possibility of a default.

There is both registered and eligible silver stored in the comex vaults, eligible is silver that is owned and not "eligible" to be dilivered to contract holders. And there is registered, which is silver "registered" to be dilivered to contract holders. Eligible is a wish where as registered is a garauntee. But what happens when there are too many requests for registered silver in the COMEX and not enough supply? There is a failure to deliver.

This is not the end of the world like some analysts will have you believe. Instead, it is a delay. The COMEX will continue to trade paper silver and deliver when there is inventory, however, COMEX inventory may not be permitted to fall below a certain amount, so delivery schedules may be misleading.

I ask this question because there are curently 70150 contracts open on the exchange for silver (40082 puts and 30073 calls as of close on Jan 26, 2026). A put is an option to sell the commodity if the price falls and a call is an option to buy a commodity if the price rises. Either have to be "in the money" for a contract holder to be able to collect physical silver from the vaults. It is important to note that each contract represents 5000 ounces of silver so the total potential silver exposure in January 2026 is 350 million ounces. But not all contracts will finish the month off "in the money".

Now, for the month of January none of the puts finished in the money but about 25000 call options did. That represents about 125 million ounces that could be delivered. There are 114 million ounces of registered supply of silver in the COMEX vaults, so a default seems likely if everyone takes delivery. However only a small fraction usually do, so assuming 10% of contract holders take delivery, there will be a 12.5 million ounce drain on the COMEX come the first week of February.

The month of February looks no better then January. Infact, February could be worse if more contracts are rolled back or opened. There will likely be a 20 million ounce drain on the COMEX before March, and then the number of open contracts falls to roughly 28000 contracts, of which currently only 8000 are "in the money".

So, did the COMEX sidestep a default due to good planning and vault reserves? Maybe, but greed may get the better of the regulators because with each contract comes "margin" and margin is profit for the COMEX. The margin is a fraction of a contract's cost that is paid for the right to excersize the contact at a future date. That cost currently sits at 9% of a contract's value per contract. The current margin amount? $49,050. More contracts mean more margin more margin means more profit but with profit comes risk, and that is where we stand in the silver market today - Making profits and taking risks.

King Henry George of Britain