Selling pressure incoming in the next week

And no, it isn't MrSlammy this time

PS: I made a grave mistake with the percentages in an earlier version (the email I sent out). This has been corrected now. The volumes mentioned are correct according to multiple sources. So the thesis as posited stays the same. Thanks to my readers PG & Santi to call this out!

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Silver closed 2025 with one of the most spectacular rallies in decades. Up 150%. Trading around $80/oz. Record highs within touching distance. Industrial demand strong. Supply deficits persistent. The fundamentals look solid.

And starting Thursday (Jan 8), passive index funds are going to dump billions worth of it anyway.

Now, before you start pointing fingers at the usual suspects - yes, I’m talking about MrSlammy, that mysterious entity we blame every time precious metals get hammered during thin trading hours - this one’s different. This isn’t some shadowy bullion bank operation dropping 10,000 contracts at 3am to trigger stop losses.

This is commodity index rebalancing.

Most retail investors have never heard of it. But understanding how it works is the difference between panicking and profiting from what’s about to happen.

Commodity indices like the Bloomberg Commodity Index (BCOM) and the Goldman Sachs Commodity Index (GSCI) are designed to track broad commodity market performance. Think of them like the S&P 500, but for commodities instead of stocks. These indices assign specific weights to each commodity based on their relative importance in the global economy and market size.

Once a year, these indices recalculate those weights.

The process is methodical. They look at production data, trading volumes, and market liquidity. They adjust the percentages to reflect current market realities. Energy products might get heavier weighting. Agricultural commodities might shift around. Metals get rebalanced based on their importance and availability.

Hundreds of billions of dollars in passive funds track these indices. ETFs, pension funds, institutional portfolios - they all hold positions that mirror the index weights. When the index committee announces new target weights, these funds have no discretion. They must adjust their holdings to match.

If crude oil’s weight increases from 15% to 18%, they buy crude oil futures. If natural gas drops from 7% to 5%, they sell natural gas futures. The funds don’t analyze fundamentals or make judgment calls about whether the commodity is undervalued or overvalued. They just rebalance to hit the target percentages.

This is what is going to happen to silver and gold starting tomorrow.

The 2026 rebalancing actually shows target weight increases for both metals in their respective indices. BCOM’s gold weight rises from 14.29% to 14.90%. GSCI’s gold weight jumps from 5.10% to 7.24%. Even silver gets a bump in GSCI, from 0.48% to 0.65%.

So why the selling pressure?

Because gold and silver have rallied so hard that their current market value in index portfolios far exceeds even these higher target weights. When you own an asset that doubles in price, its percentage of your portfolio doubles too - even if you don’t buy a single additional share. Passive funds need to sell billions in futures to bring their actual holdings back down to target percentages.

Silver is particularly vulnerable here. In BCOM, silver is actually dropping from roughly 9% to just under 4% - a massive reduction that requires significant selling despite silver’s strong performance fundamentals. The math is brutal for a smaller, less liquid market.

Goldman Sachs and Citi published their impact estimates, and the projected flows are massive - roughly $5-7 billion in selling pressure for silver, another $6-7 billion for gold. For silver specifically, this translates to approximately 13,000 COMEX contracts, representing about 9% of total open interest. Gold faces around 11,000 contracts, roughly 3% of open interest.

The selling isn’t spread evenly over the year. Most of it happens during the “roll period” - typically the first two weeks of January, though some funds execute over a longer window depending on their strategies.

Thursday marks the beginning of this year’s roll period. January 8 through January 14, roughly, though the exact timing varies by fund.

The passive money doesn’t care that silver had its best year since the 70s. It doesn’t care about supply deficits or industrial demand or solar panel manufacturing. The algorithm says sell 13,000 contracts, so it sells 13k contracts.

This is mechanical selling in its purest form.

But wait. Remember MrSlammy?

Because now they have perfect cover to pile on even more selling pressure. When index funds are dumping billions in silver futures, it creates the ideal smokescreen for the usual suspects to add their own short positions and push prices down even further.

Think about it. The market already expects downward pressure from the rebalancing. Perfect time to add your own selling and blame it on “passive flows”. Who’s going to notice an extra few thousand contracts when 13,000 are already hitting the market? The PTB love these opportunities - legitimate mechanical selling provides cover for the illegitimate kind.

This is why I wouldn’t be surprised to see silver get pushed harder than the pure index rebalancing math would suggest. The algorithms will do their thing, sure. But the bullion banks will be right there alongside them, maximizing the damage while everyone’s looking at the index flows.

The Gold/Silver Ratio tells another part of this story. The GSR measures how many ounces of silver it takes to buy one ounce of gold. For most of 2025, this ratio has been falling - silver outperforming gold, which is exactly what you’d expect in a strong industrial demand environment. We’ve dropped below 60, sitting around 56-57 now.

That downtrend has been beautiful to watch. Every drop in the GSR means silver is gaining ground relative to gold. But even the best trends need to breathe.

I think we’re about to see a temporary reversal. During this index rebalancing weakness, combined with MrSlammy piling on extra pressure, the GSR could easily retrace back to the 60-62 region. Silver gets hit harder than gold in these mechanical selloffs - smaller market, more volatile, easier to push around. A backtest of 60-62 wouldn’t surprise me at all.

But that’s just a breather. Once the rebalancing pressure lifts and the fundamentals reassert themselves, I expect the GSR to resume its decline toward the 50-47 range.

What does this mean for the rest of us?

It means we’re about to see price action that has nothing to do with silver’s actual supply and demand dynamics. It means quality silver miners with strong balance sheets and low-cost production are going to get dumped alongside garbage operations barely hanging on. It means futures prices will face downward pressure even though nothing fundamentally changed about the metal itself.

The algorithms executing these trades don’t read quarterly earnings. They don’t calculate all-in sustaining costs. They don’t distinguish between a well-managed silver streaming company and an overleveraged exploration outfit. They just sell whatever silver exposure the fund holds until the portfolio matches the new index weight.

I’ve seen this movie before. It creates opportunities for those willing to step in while the mechanical selling runs its course.

I’m scaling back a bit today - maybe adding a small position, maybe waiting. The temptation to buy aggressively right now is strong, but I’d rather see how Thursday plays out first. Over the next few days though? I’m buying every dip I can afford.

Because let’s be clear about what hasn’t changed.

Industrial demand for silver remains robust. The supply deficit that’s persisted for years is still there. Solar panel manufacturers aren’t finding alternatives. Electronics production isn’t slowing down. Electric vehicle adoption continues. The physical market dynamics that drove silver from $29 to $80 over the past year are intact.

But for the next week or two, none of that matters to the passive flows.

Expect volatility. Expect price action that makes you question reality. Expect mining stocks to drop on no company-specific news whatsoever. Expect frustration. And yes, expect MrSlammy to show up too - because if there’s one thing the bullion banks won’t miss, it’s an opportunity to piggyback on legitimate selling pressure.

Then remember this is a temporary phenomenon. The rebalancing isn’t about fundamentals changing. It’s about spreadsheet math and mechanical algorithms. You’ll have accumulated silver at prices created by index committee decisions and passive fund requirements, not by any deterioration in the metal’s actual prospects.

And I’ll be buying those dips.