Today, a thought experiment concerning the use of silver and gold as collateral for loans in India.
It's already well known (or, perhaps not) that beginning April 1, 2026, silver will be allowed to be used as collateral for loans alongside gold, which has been used as such for many years.
The Reserve Bank of India (RBI) has announced that starting April 2026, individuals can secure loans using silver jewellery as collateral. This policy aims to improve credit access and standardize borrower protections, particularly benefiting low-income households and small businesses, especially in rural areas where silver holds both cultural and financial significance. The total weight of silver ornaments pledged for all loans to a borrower cannot exceed 10 kgs. This policy is expected to help those who traditionally relied on gold-backed loans, while also ensuring clearer accountability among lenders.
39. Loans against ornaments and coins shall be subject to the following: 1. the aggregate weight of ornaments pledged for all loans to a borrower shall not exceed 1 kilogram for gold ornaments, and 10 kilograms for silver ornaments. 2. the aggregate weight of coin(s) pledged for all loans to a borrower shall not exceed 50 grams in case of gold coins, and 500 grams in case of silver coins.Read more at: https://taxguru.in/rbi/rbi-rural-co-operative-banks-credit-facilities-directions-2025.html Copyright © Taxguru.in
There has been extensive coverage of this development:
Silver Loan Is Coming: Can RBI’s New Rule Unlock India’s Idle Wealth — Or Create a New Trap?
Can you take a loan with silver as collateral? Here is what the RBI rules say
RBI (Rural Cooperative Banks – Credit Facilities) Directions, 2025
For purposes of this argument, Western weights will be employed (ounces, grams). The limits in India are 1 kilogram of gold and 10 kilograms of silver, a 10:1 ratio, which begs the question: Does the Royal Bank of India (RBI) believe gold is 10 times more valuable than silver, or, does the RBI wish that were the case? At the current gold:silver ratio of around 60:1, the bank's limits make little sense unles they either 1) intend to keep poor Indians poor, or, 2) the bank intends the ratio to decline to their preference of 10:1, which would be good for holders of silver, mostly poorer, rural farmers and merchants.
Read on.
OK, you're a small business operator in suburban India, outside Bangalore, or Mumbai, say. You're planning an expansion of the business later in 2026, around October or November. You have some gold and some silver. You look at the math: If you were to borrow against one ounce of gold, currently valued at around $4,385. You'll get 85% loan-to-value (LTV), or, about $3,727.
At the 10:1 ratio, you could use 10 ounces of silver, roughly $74 per ounce, and receive 75% (LTV), or, about $555, because the real world gold:silver ratio is around 60:1.
If the ratio was 10:1, you could borrow much more with those 10 ounces of silver. At the current gold price, silver would be $438, you're 10 ounces would be worth roughly the same as an ounce of gold, or $4,385, and you'd get a loan for about $3,288 (75% LTV).
Now comes the thought experiment: Would the spread between RBI limits and their 10:1 ratio and the real world ratio of 60:1 encourage you to buy more silver, in the belief that it's undervalued in the real world and not well-aligned with the ratio the RBI has, intentionally or not, put forward, or would you buy more gold, in the belief that gold has better value overall?
Something to ponder as this may be carefully thought out action by the RBI, designed to gradually reduce the gold:silver ratio to its historical precedent and may affect the price of gold and silver going forward. Recent gains in silver pricing appear to indicate that the Indian rules for collateral (which, BTW, are already in effect, the rule stating that banks need to comply no later than April 30) are already engendering some market effects.
If other countries - China, Russia, Indonesia, for instance - adopt similar rules, the general effect may be even more dramatic and dynamic.
Monday's action in precious metals was as violent a reversal as was Thursday's abrupt upward pricing. Considering the historic context, one would assume that spot prices for gold and silver, which were absolutely trashed, was largely the work of COMEX shorts, attempting to regain control of the pricing mechanism, which was hijacked by Shanghai on Friday (Shanghai'd, so to speak).
Silver declined from $79 to $72, gold from $4,533 to $4,333, a $200 dump, but only roughly half of silver's downdraft in percentage terms. Regardless, prices in Shanghai and New York are nearly matched up, the gap on silver down from $8, to about $2, hardly worth any effort to arbitrage, especially since silver is behaving in its usual unpredictable, volatile manner. Rather than buying up a million ounces (good luck finding them), putting them on a plane bound for China, and selling them at the Shanghai Metals Exchange, it would probably be easier to just buy and hold until the price goes up in your own jurisdiction. That's actually what has happened overnight. Silver closed at $72.10 in New York. At 8:22 am ET today it's $76.36.
The primary reason for Monday's big selloff in both gold and silver is the institution of new, more stringent margin requirements on futures for both. The CME issued the guidance last week, and made the effective date, Tuesday, 12:00 am, which gave the short, weak hands all day Monday to exit their positions, which is exactly what happened. Now, with new margin requirements in place, price-setting now is the province of bullion banks, industrial users who need metal now, and professional speculators. The physical price in Shanghai on December 30 is $80.64. Expect New York to close near that level, because, in reality, China now controls price-setting, not the COMEX, or the LBMA, New York, or London. Shanghai. There may be some arbitrage between Shanghai and New York and London, but probably not enough to actually move metal, as noted above, though inside price suppressors on the COMEX may not give up without a serious fight.
On that note, the price of silver - and gold - can proceed to higher levels and the gold:silver ratio can continue its descent. With just today and tomorrow remaining for markets to adjust, expect to see better price alignment globally, but, with the caveat that India, China, Russia, and all of the BRICS associates have intentions for silver far beyond industrial use and hoarding.
Stocks backed off the Santa Claus Rally™ high, the major indices dropping in union. With less than an hour prior to the opening bell, stock futures are flat. The rally - which, seriously, was already at all-time highs, so what did they expect? - seems to have stalled out. The last couple of trading sessions might be considered pretty dull as traders consider tax-related selling on Friday, January 2, the first trading session of 2026. If that's the case, a correction may be in play the first two weeks of the New Year.
As strange as it may seem, Dow Theory may still be valid. The Dow Jones Transportation Average has not made a new high, despite flirting with it for the past few weeks, closing December 29 at 17,559.45, -87.79 (-0.50%).
Otherwise, stay ready for anything because "leadership" in the U.S., U.K., and E.U. is unstable.
At the Close, Monday, December 29, 2025:
Dow: 48,461.93, -249.04 (-0.51%)
NASDAQ: 23,474.35, -118.75 (-0.50%)
S&P 500: 6,905.74, -24.20 (-0.35%)
NYSE Composite: 22,165.95, -80.61 (-0.36%)
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