Something interesting is happening in the silver market, and veteran London stockbroker Alasdair Macleod thinks we're watching a structural squeeze play out in real time. His take? The market is heading toward a breaking point, and when reality hits, prices could move dramatically higher.

Speaking in an interview for CapitalCosm, Macleod laid out a thesis that connects decades of derivative market dynamics with emerging physical shortages. For years, gold bugs have argued that derivatives suppress precious metal prices. Macleod agrees that's been true, but he thinks that era might be ending.

"As long as I've been looking at the relationship between physical and derivatives, there have been gold bugs saying the derivatives are used to suppress the price of gold and silver. Undoubtedly, that is true. But if that's coming to an end, then there is going to be massive buying pressure from that end alone as people move out of paper," he explained.

The COMEX Situation and Physical Delivery Pressure

Macleod pointed to last week's COMEX blackout as a revealing moment. Before the outage, there were roughly 36 million ounces of stand-for-delivery orders sitting in the system. That's a lot of metal changing hands.

He noted that major data centers usually have multiple layers of backup cooling systems, which makes a simple failure seem odd. "The powers that be just pulled the plug on the whole system while they try to sort it out," he suggested, raising eyebrows about what might be happening behind the scenes.

Here's the key detail about COMEX physical delivery: the metal doesn't necessarily leave CME warehouses. "The point is that the ownership changes, and it goes into firm hands. It's no longer available as liquidity in the market, being registered for delivery," Macleod explained.

Once metal is de-registered after delivery, it can't underpin short positions or arbitrage strategies anymore. It's effectively out of circulation from the paper market's perspective.

According to Macleod, physical shortages are showing up everywhere, from London to COMEX. This year's stands for delivery add up to roughly 12,500 tons of silver and 1,200 tons of gold. That makes COMEX "the largest precious metals mine in the world," as he put it.

China Changes Everything

The China angle is central to Macleod's argument. Shanghai silver stocks have dropped below 600 tons, a threshold that signals severe shortage conditions. That's already concerning, but the bigger shift is policy-driven.

Starting January 1, China is banning silver exports. This removes what Macleod considers the key source of swing supply that previously helped keep Western prices in check. Without Chinese metal flowing into global markets, the dynamics change completely.

"If they're withdrawing from the market completely, there is no lid on silver. None whatsoever," he said.

Why ETFs Might Not Save You

If you're thinking about buying iShares Silver Trust (SLV) or similar products to play this theme, Macleod has a warning. He's skeptical that exchange-traded vehicles give you real exposure to the physical market.

These products are "a piece of paper which is a derivative" rather than actual metal, he argued. In stressed market conditions, authorized participants can play games with stock borrowing and share issuance. ETFs remain embedded in the same derivative infrastructure that Macleod believes is under pressure.

When Will Investors Notice?

For now, Macleod thinks this move is being driven primarily by industrial demand rather than speculative investors. But bull markets have a way of attracting attention eventually.

"When you see something going up, you might ignore it for a bit, but then there comes a point where you can ignore it no more, and you've got to go and buy some," he observed. In silver, he concluded, "we have yet to see that."

The question is what happens when retail and institutional money decides to chase a market that's already dealing with structural supply constraints and a major exporter stepping away. If Macleod's right about the derivative market unwinding and physical metal disappearing into firm hands, that moment could get interesting fast.