Gold & Silver: Parabolic or Catch-Up? – Part III
Authored by Bernard Hunter via the 12 Temptations blog.
Delivery occupies an unusual position in modern markets. It is foundational in theory and marginal in practice, embedded carefully in rulebooks while remaining distant from everyday participation. Contracts reference it, exchanges provide for it, and entire pricing systems are built on the assumption that it exists. Yet most participants move through these markets as if delivery will never be required in any meaningful way. Most of the time, that assumption is rewarded.
For decades, futures markets have functioned primarily as mechanisms for exposure rather than exchange. Positions are opened and closed, risk is transferred, and price discovery unfolds without metal changing hands. Settlement is financial. Obligations are netted. Contracts are rolled forward as a matter of routine. In that environment, delivery becomes something closer to a boundary condition than an expectation. A theoretical backstop that rarely needs to be touched.
This arrangement works because it rests on shared confidence. As long as most participants behave as though delivery will remain peripheral, it does. The distinction between owning a claim and owning metal recedes from view, not because it is unimportant, but because it does not need to be confronted. Confidence reinforces itself. The system functions smoothly precisely because it is not asked to prove itself.
Delivery becomes significant only when that background confidence begins to thin.
When Confidence Becomes Conditional
Standing for delivery is not a dramatic act. It is a contractual option exercised within the rules of the market. But when more participants choose, or feel compelled, to exercise it the character of the system shifts. What was designed to handle a small, predictable flow is now asked to accommodate something larger and less predictable. And it is at that point that latent constraints begin to show.
The first sign is rarely outright shortage. It is strain. Inventories are drawn down. Eligible metal is registered. Bars are mobilised from one category to another. These processes can unfold without panic and usually do. But they are slower, more frictional, and more visible than the creation of paper claims. They introduce delay where markets are accustomed to immediacy, and negotiation where markets prefer automation.
Those frictions matter because modern markets are optimised for confidence and speed. Liquidity depends not only on assets being available, but on participants believing they are available without complication. Delivery interrupts that belief. It forces the system to acknowledge that some obligations cannot be deferred indefinitely, and that some forms of settlement are not interchangeable in practice, even if they are equivalent on paper.
As that acknowledgement spreads, behaviour adjusts. Some participants reduce exposure, not because they doubt the existence of metal, but because the cost of being wrong has increased. Others press their advantage, precisely because they want to test where the boundary lies between financial convenience and physical reality. Neither response is irrational. Both reflect an environment in which assumptions that once felt safe now require re-examination and it is here that volatility acquires a different texture.
How Volatility Changes Character
Price movements widen not simply because sentiment has become excitable, but because confidence has become conditional. Liquidity is still present, but it is offered more cautiously and withdrawn more quickly. Bids appear, then step back. Offers show, then retreat. The market continues to function, but it does so with heightened sensitivity to uncertainty.
From the outside, this can resemble instability or loss of control. From within, it often feels more like hesitation. Participants are no longer certain that yesterday’s solutions will work tomorrow. They size down, demand greater compensation for risk, or wait for clarity that never quite arrives. Price becomes jumpier not because information has disappeared, but because conviction has.
Delivery stress also exposes an asymmetry between trust and verification. For long periods, trust is sufficient. Participants trust that claims can be settled, that metal can be sourced, that obligations will be honoured. Verification exists, but it remains largely theoretical, a safeguard rather than a daily concern.
When verification shifts from theory to practice, the emotional temperature of the market changes. Trust does not vanish, but it is no longer assumed. It must be demonstrated repeatedly, under observation. That subtle change is enough to alter behaviour, even when outcomes remain orderly.
This is why delivery functions best as a stress test rather than a breaking point. It does not necessarily cause failure. It reveals where resilience exists and where it does not. It distinguishes between systems that are robust and systems that are merely efficient. Efficiency optimises for normal conditions. Robustness is revealed only when conditions deviate.
Adjustment Rather Than Resolution
Financialised markets excel at efficiency. They are less comfortable with robustness.
The result of delivery stress is rarely collapse. More often, it is adaptation under pressure. Some participants accept higher volatility as the price of continued engagement. Others withdraw liquidity temporarily while reassessing risk. Some seek physical exposure as a form of certainty; others retreat into cash or adjacent assets. These responses do not resolve the underlying tension. They redistribute it.
That redistribution is what makes price behaviour during delivery stress so difficult to interpret. Moves can appear exaggerated. Pullbacks can feel abrupt. Continuations can seem stubborn. Traditional narratives struggle to keep pace because the driver is not a single story, but a shifting balance between confidence, obligation, and capacity.
It is tempting to frame delivery stress as a binary event; either the metal is there or it isn’t; either the system holds or it breaks. Reality is usually less dramatic and more instructive. Stress reveals gradients rather than cliffs. It shows where pressure accumulates, where it dissipates, and what price must do to keep the system functioning.
What matters most is not whether delivery succeeds, (it usually does), but what price is required to make it succeed. If price must rise sharply to persuade holders to part with metal, that tells us something about willingness. If volatility must increase to ration demand, that tells us something about flexibility. If liquidity must step back temporarily to reassess risk, that tells us something about confidence.
These signals are not captured cleanly by standard indicators. They live in behaviour rather than outputs. They are noticeable in execution quality, in spreads, and in the speed with which liquidity appears and disappears. They are felt by participants before they are named by commentators.
For investors accustomed to interpreting markets through familiar lenses, this can be disorienting. High prices coexist with fragility. Direction persists alongside unease. The market feels strong and unsettled at the same time, a combination that resists easy explanation.
That discomfort invites premature conclusions. Some will read delivery stress as proof that suppression has finally failed. Others will see it as confirmation of speculative excess about to unwind. Both stories offer clarity. Both simplify what is, in reality, a transitional process.
Resisting the urge to conclude
Delivery does not announce victory or defeat. It signals adjustment, and adjustments are rarely tidy. They unfold unevenly, expose assumptions gradually, and punish overconfidence more reliably than ignorance. They reward patience not because patience guarantees correctness, but because haste almost guarantees misinterpretation.
Delivery will not remain central forever. Markets adapt. New equilibria form. Stress points fade back into the background. But once delivery has mattered, even if only briefly, it leaves a residue of awareness. Participants remember that settlement is not purely symbolic, and that memory alters behaviour long after immediate pressure subsides.
In that sense, delivery is not merely a contractual mechanism. It is a reminder that price is not just a number on a screen, but a promise that, from time to time, must be honoured in metal rather than margin.
Understanding delivery as a stress test rather than a trigger helps explain why price action during these periods feels so resistant to narration. The market is not telling a single story. It is revealing its tolerances. And tolerances are discovered, not declared.
In the next part of this inquiry, we’ll turn to interpretation itself. Specifically, to indicators, narratives, and the temptations they present when markets behave in ways that refuse easy explanation. Because when systems are under strain, the greatest risk often lies not in the movement of price, but in the stories, we rush to tell about it.
Catch Up: