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Persistently thin silver inventories mean prices are likely to remain highly sensitive to market flows, creating significant upside potential and downside risk, according to new analysis from Goldman Sachs.

Analysts Lina Thomas and Daan Struyven noted that depleted stockpiles have set the stage for market squeezes. "Thinner inventories have created conditions for squeezes, where rallies accelerate as investor flows absorb remaining metal in the London vaults and reverse sharply when tightness eases," they wrote in a Wednesday note.

However, the analysts clarified that recent price turbulence is not a symptom of a global silver shortage. Instead, it stems from localized supply bottlenecks that are distorting the market.

The London Squeeze Effect

A key driver of this volatility is the unusually low level of silver supplies in London, where the global benchmark price is determined. This situation arose after a large volume of the metal was moved into U.S. vaults last year due to concerns that the Trump administration might impose trade tariffs.

While silver’s landmark 2025 rally was fueled by fundamental investor demand—driven by safe-haven buying, expectations of Fed rate cuts, and asset diversification—the squeeze in London is dramatically amplifying the impact of these capital flows.

Price Sensitivity Has Surged

Under normal market conditions, a weekly net demand of 1,000 metric tons would typically push silver prices up by about 2%. In the current environment, Goldman Sachs estimates that price sensitivity has surged to approximately 7% for the same volume.

The analysts warned that these extreme price movements are likely to persist, creating sharp swings in both directions.

The Bull Case: Room for More Investor Demand

Even with silver at all-time highs, Goldman Sachs suggests that investor demand may not be overstretched. They point out that holdings in silver ETFs remain below their 2021 peak, indicating that further inflows could be triggered by rate cuts and continued investor diversification.

The Bear Case: Policy Uncertainty Holds the Key

On the other hand, a significant price pullback could occur if trade policies are clarified, allowing silver to flow from U.S. vaults back to London. However, any lingering policy uncertainty will likely keep the metal on American soil.

Goldman noted a similar pattern with gold. Much of the gold that moved into New York COMEX vaults remained there even after Washington confirmed the metal would be exempt from tariffs. "If silver follows the same pattern, most silver may remain in New York COMEX vaults and extreme price action could persist even after a definitive statement on US silver tariffs," Thomas and Struyven wrote.

China's New Rules Add Another Layer of Risk

Further complicating the global picture are China's new 2026 export restrictions, which now require official approval for outbound silver shipments. Goldman Sachs believes this policy could fragment the global silver market, ultimately reducing liquidity and amplifying price swings.

"Disruption risk may prompt participants to secure their own stockpiles rather than share buffers globally," the analysts explained. This could transform the market from an integrated global system into a fragmented one. "This shift from a pooled global system to isolated regional inventories would create an inefficient structure — transforming a smooth, integrated market into one prone to sharp, localized price swings."

The U.S. trade deficit narrowed dramatically in October, hitting its lowest point since 2009 after a sharp, unexpected drop in goods imports coincided with the implementation of President Donald Trump's tariffs.

According to government data released on January 8, the overall trade gap fell by 39% to $29.4 billion. This figure was significantly smaller than the $58.4 billion median forecast from economists surveyed by Dow Jones Newswires and The Wall Street Journal. The release of the report was delayed by over a month due to a government shutdown in 2025.

In October, total imports fell by $11.0 billion to $331.4 billion, while exports increased by $7.8 billion to $302.0 billion. The previous month's trade deficit in September was recorded at $48.1 billion.

What's Driving the Decline in Imports?

The primary driver behind the shrinking deficit was a major reduction in goods imports. The Commerce Department reported that imports of consumer goods declined by $14.0 billion, with pharmaceutical preparations experiencing a particularly steep fall.

Additionally, imports of industrial supplies and materials, including nonmonetary gold, also decreased.

KPMG senior economist Meagan Schoenberger noted that while falling pharmaceutical imports were the main factor, trade in nonmonetary gold also played a significant role. Gold accounted for a large portion of the export increase and a smaller part of the import decline.

"The run-up in gold in 2025 has clouded the trade picture and during the month of October made the trade deficit look narrower than the remainder of the product mixture implies," Schoenberger explained. She added that outside of gold, "the main contributors to declining imports were pharmaceuticals, which fell $14.3 billion alone."

The pharmaceuticals sector has been volatile following significant inventory stockpiling by firms in early 2025 and could have been affected by trade policy announcements in October.

Other imported goods showing modest declines included:

• Auto parts

• Oil and natural gas

• Fruits and vegetables

In contrast, Schoenberger pointed out that "imports of high-tech capital goods continued their upward march given tariff waivers for the industry and the build-out of data centres to feed AI demand."

The Impact of Trump's Tariff Strategy

These trade figures highlight the influence of the sweeping tariff policies introduced since President Trump returned to office in 2025. As his administration rolled out broad tariffs on imports from multiple trading partners, many U.S. businesses accelerated their purchasing to build up inventory before the duties took effect. This strategy has, for now, helped many companies avoid passing the full cost of the tariffs on to consumers.

Amid rising concerns about the cost of living, Trump has recently expanded the list of goods exempted from certain tariffs, particularly covering key agricultural imports. However, many of these exemptions were scheduled to begin in November.

According to an estimate from the Budget Lab at Yale University as of mid-November, American consumers are facing the highest overall average effective tariff rate since the 1930s.

Legal Hurdles and Future Uncertainty

While Trump's tariffs have reshaped trade flows, a significant portion of them are also facing legal challenges. The Supreme Court is expected to rule on the legality of tariffs imposed under the International Emergency Economic Powers Act after hearing arguments in November.

A decision by the court that the president overstepped his authority could temporarily invalidate numerous country-specific tariffs, though it would likely not affect those applied to specific sectors.

Iran experienced a nationwide internet blackout on Thursday, according to the monitoring group NetBlocks. The outage coincided with the government's rollout of high-stakes subsidy reforms as street protests over economic hardship intensified across the country.

While further details on the internet disruption were not immediately available, witnesses in Tehran, Mashhad, and Isfahan confirmed that demonstrators returned to the streets, chanting slogans against the Islamic Republic's clerical leadership.

Unrest Spreads From Tehran's Markets

The current wave of dissent, the largest in three years, began last month when shopkeepers in Tehran's Grand Bazaar protested the free fall of the rial. The unrest has since gone nationwide, fueled by public distress over skyrocketing inflation, Western sanctions, and restrictions on political and social freedoms.

Adding to the pressure, Reza Pahlavi, the exiled son of Iran's late Shah, urged for more protests in a video posted on X. Social media posts, which could not be independently verified, reported demonstrators chanting pro-Pahlavi slogans in several cities.

Government Responds to Economic Crisis

In response to the economic turmoil, President Masoud Pezeshkian issued a warning to domestic suppliers against hoarding goods or overpricing, state media reported. "People should not feel any shortage in terms of goods' supply and distribution," he stated, ordering his government to ensure adequate supplies and monitor prices.

The government's actions come as it implements major subsidy reforms designed to favor consumers over importers. The new policy eliminates the preferential currency exchange rates that gave importers access to foreign currency at cheaper rates than ordinary citizens.

Under the new system, Iranians will receive approximately $7 per month to buy basic goods at selected grocery stores. However, the policy's announcement has already led to significant price increases for essential items like cooking oil and eggs.

International Pressure Mounts

The domestic crisis is unfolding under the shadow of international pressure. U.S. President Donald Trump has threatened to aid protesters if security forces open fire on them.

This statement follows a period of heightened tension, coming seven months after Israeli and U.S. forces conducted bombing raids on Iranian nuclear sites.

A critical Friday is on the horizon for cryptocurrency markets, with a Supreme Court ruling on tariffs and the release of U.S. employment figures set to converge. Tariff discussions have been a source of market sensitivity since 2025, contributing to increased volatility this January as investors monitor the situation closely.

Supreme Court Tariff Decision: What to Expect

U.S. tariff policies, a historically contentious issue, are once again in focus. According to U.S. Treasury Secretary Bessent, the administration has contingency plans ready in the event the Supreme Court decides to repeal the tariffs.

While the prevailing market sentiment leans toward the tariffs being lifted, any deviation from this expectation could introduce turbulence across financial markets.

Trump Administration Signals Readiness

The Trump administration has been preparing its strategy for months to handle any potential policy shift. Treasury Secretary Bessent and other officials have emphasized their readiness to adapt to the court's decision. Bessent commented on the administration's planning for both the Federal Reserve and tariffs.

Our ability to sustain tariffs at current levels is undeniable. IEEPA tariffs have driven Mexico and Canada to negotiate on fentanyl. The Chinese seem to be taking serious steps on fentanyl due to IEEPA tariffs. Alongside other officials, we hold authority to revise tariffs.

Economic Outlook: Interest Rates and Deficit Targets

Beyond tariffs, Bessent provided insights into the broader economic picture, highlighting several key areas:

• Fraud Recovery and Defense: Funds recovered from fraud could help finance a larger defense budget.

• Interest Rates: Rates are currently well above neutral, and Bessent advised against adopting a restrictive monetary stance. Economic models project the Federal Reserve's interest rate to land in the 2.5% to 3.25% range.

• Deficit Reduction: For the current year, the administration anticipates a deficit reduction between $300 billion and $500 billion.

While Bitcoin's recent rally suggests a degree of resilience, the upcoming announcements could still introduce unexpected market behavior. As traders and observers await the dual news on tariffs and employment, Friday’s events are positioned to heavily influence the future trajectory of the cryptocurrency landscape.

Mexico's central bank is signaling a more cautious approach to future interest rate cuts, citing new uncertainty from trade tariffs and domestic taxes. Minutes from Banxico's December policy meeting reveal that while policymakers approved another rate cut, they are growing wary of inflation risks looming in 2026.

This development is strengthening market expectations that the central bank could soon pause the monetary easing cycle that began in 2024.

December Rate Cut Masks Deeper Concerns

In its December meeting, Banxico’s board voted 4-1 to cut its benchmark interest rate by 25 basis points to 7.00%, its lowest point since April 2022. Deputy Governor Jonathan Heath was the sole vote against the cut, preferring to hold rates steady.

The majority argued the reduction was justified by recent progress on inflation, a weak economy, and a strong peso. However, the meeting's minutes show that policymakers flagged several factors that demand a more careful outlook for future decisions.

The Bank of Mexico headquarters, where policymakers are signaling a more cautious stance on future interest rate cuts.

New Tariffs and Taxes Fuel Inflation Fears

The primary sources of concern are new government policies expected to drive up prices. A majority of the bank's governors believe these measures will create inflationary pressure in 2026.

Key policy changes include:

• Import Tariffs: Mexico has implemented tariff hikes of up to 50% on goods from China and several other Asian nations with which it lacks a trade agreement. The measure is designed to support local industry.

• Special Taxes: Lawmakers approved new taxes on specific products, including soda, cigarettes, and video games.

Actinver Research noted that these policies, combined with a 13% increase in Mexico's minimum wage for 2026, could cause a rebound in inflation during the first quarter.

A "Wait-and-See" Approach Emerges

While most governors view the inflationary impact of these new policies as temporary, they stressed the need for caution. The minutes reveal a shared concern that these price shocks could persist longer than anticipated.

"The shocks anticipated for 2026 could impact price dynamics over the planning horizon and delay inflation convergence," one board member who voted for the rate cut stated.

Another member, who also supported the cut, commented that while special taxes don't typically distort market prices, it will take time to ensure no "second-round effects" materialize. This member concluded that "a wait-and-see approach will need to be adopted."

Stubborn Core Inflation Complicates Policy

The central bank's cautious turn is also driven by persistent core inflation, which excludes volatile food and energy prices. This key index has remained outside Banxico's target range since May and rose for much of 2025.

Although it ticked down to 4.33% in December, it remains stubbornly above the bank's 3% target, which has a tolerance band of plus or minus one percentage point. In contrast, annual headline inflation for 2025 came in below forecasts at 3.69%.

The hawkish Deputy Governor Heath argued for holding rates steady to analyze how to bring down core inflation and prevent a new surge in the headline rate.

What's Next? Analysts Expect a Pause

Market analysts widely anticipate that Banxico will pause its rate-cutting cycle sometime in the first half of the year.

Kimberley Sperrfechter, an economist at Capital Economics, said that while December's easing price pressures leave the door open for another cut, "the central bank's cautious tone, alongside still elevated core price pressures, means that we think a hold is a slightly more likely outcome."

Alberto Ramos, an economist at Goldman Sachs, expects Banxico to pause rate cuts at its next two meetings. He noted that four of the five board members "seem committed to extending the cutting cycle, likely after a pause to evaluate the impact of the upcoming increase in taxes and import tariffs."

The United Nations has pushed back against a decision by the United States to withdraw from dozens of international entities, emphasizing that U.S. funding for many of these groups is a mandatory legal obligation.

U.N. Secretary-General Antonio Guterres expressed regret over the move, which was announced by U.S. President Donald Trump. The Trump administration justified the withdrawal by stating that the targeted organizations, including a key climate treaty and a U.N. body for gender equality, "operate contrary to U.S. national interests."

United Nations Secretary-General António Guterres addresses member states amid rising tensions over U.S. funding commitments.

UN Stresses U.S. Financial Obligations

According to U.N. spokesperson Stephane Dujarric, the U.N. has not yet received any formal notification from Washington about the plan, which targets 31 U.N. entities. Dujarric noted that withdrawing from treaty organizations would require official letters.

He stressed that a "large number" of the organizations on the U.S. list are financed through the U.N.'s regular budget. These payments, known as assessed contributions, are not optional.

"Assessed contributions to the United Nations regular budget and peacekeeping budget, as approved by the General Assembly, are a legal obligation under the U.N. Charter for all member states, including the United States," Dujarric stated.

The United States is the largest single contributor to the U.N. regular budget, responsible for a 22% share. However, Dujarric confirmed the U.S. made no payments to the regular budget last year and currently owes approximately $1.5 billion.

Mandatory vs. Voluntary Funding Explained

The U.N.'s financial structure distinguishes between mandatory and voluntary funding.

• The Regular Budget: This budget is mandatory for all members. For 2026, it is set at $3.45 billion and covers core activities in political affairs, humanitarian work, disarmament, and communications.

• Voluntary Contributions: Funding for most specialized U.N. agencies, such as the World Food Programme and UNICEF, is voluntary.

Despite the U.S. plan, the U.N. remains committed to its work. "All United Nations entities will go on with the implementation of their mandates as given by member states," Dujarric said. "The United Nations has a responsibility to deliver for those who depend on us."

Pressure for Reform Amidst Tensions

The funding dispute comes as President Trump continues to criticize the U.N., stating that while it has "great potential," it is failing to fulfill it. His administration has consistently sought to slash U.S. funding to the international body.

In response to widespread calls for greater efficiency, Secretary-General Guterres launched a reform task force known as UN80 in March, with the goal of cutting costs and improving operational effectiveness.