Unstablecoins: Why the silver squeeze hints at a dollar liquidity shortage

Rather than being a sign of an imminent fiat money collapse, however, the dash for bullion implies China needs collateral to shore up the yuan.

Photo by Scottsdale Mint on Unsplash

The below is a summary of a much longer analysis we just posted on The Blind Spot which argues that the squeeze in silver and gold prices is being driven by liquidity shortages in China.

While the piece isn’t strictly about stablecoins, we figured that given this service is called Cash Equivalence, it would be rude not to also give readers here a basic synopsis.

Not the fiat collapse you’re looking for

TLDR: The recent surge in silver and gold prices, along with extraordinarily high silver lease rates (35 percent), does not signal a dollar “debasement trade” or a shift to “real money”trend. Instead, it suggests a desperate scramble for physical bullion by distressed entities, particularly China, to secure high-quality collateral for trade financing due to limited access to dollars and a lack of creditworthiness.

China’s low gold reserves (7 percent of foreign exchange reserves compared to Western averages of 75 percent) and reliance on foreign currency highlight its financial vulnerability, not strength. The country’s mercantilist policies, capital controls, and export-driven model have led to imbalances, forcing China to accumulate gold and possibly silver as alternative collateral amid declining dollar liquidity and stalled yuan internationalization.

The silver squeeze, with retail prices in China reaching $128/oz (four times the official rate), reflects a collateral shortage, particularly critical for China’s solar and EV industries, which heavily rely on silver. This situation is exacerbated by Western tariffs, rising silver costs, and China’s shift from a subsidized, loss-leading export model to price stabilization. The bullion market dynamics, including high lease rates and backwardation, indicate a mechanical squeeze driven by physical delivery demands, not a fiat collapse.

Ultimately, the article posits that this crisis underscores China’s economic fragility and could benefit the West, which holds significant gold and silver reserves. Selling these at high prices could rebalance trade inequities, potentially fetching the U.S. Treasury $1.5 trillion if gold hits $5,000/oz.