Export restrictions, rapidly diminishing inventories, backwardation. Silver is seeing dislocated pricing and spotty physical availability, leading to arbitraged $10/oz premiums in China versus Western markets. Add to this, we have seen repeated margin hikes and technical glitches leading to shutdowns in the futures market. Many investors are now watching silver. What does it all mean?
In short what it means is, in effect, some investors are saying, “Bring me my silver – now – not in several months’ time.” As we approached first notice day for the March Silver futures contract, we once again saw the Chicago Mercantile Exchange (CME) have a ‘technical glitch’ which caused it to cease/pause silver futures trading activity within 48hrs of a key first notice day trigger point.1
Futures market is key
When the CME reopened silver pricing fell $3/oz. We shall see what happens from here, but the last time we saw a technical glitch in silver trading just before delivery notices were posted, we subsequently saw a powerful multi month rally in prices. The futures market has become the key delivery venue for large quantities of physical metal, something which doesn’t say much for the future of ‘loco London’ as the world’s most important physical market for metals including gold and silver.
Despite this change in behaviour and contrary to some commentary online, it seems improbable to us that we will see a hard default in the US silver futures market, but rules adjustments and forced cash settlement of some participants could potentially come along.
Silver supply has become very tight in recent years due to the growing industrial demand for the metal in batteries, electronics and other tech, medical and defence applications. The recent surge in the price of silver has increased demand from investors. In November, the US added silver to its critical minerals list, which are minerals the government deems vital to the U.S. economy and national security that face potential risks from disrupted supply. 2
As can be seen from Chart 1, the amount of silver within China’s two major exchanges, the Shanghai Gold Exchange (SGE) and the Shanghai Futures Exchange (SHFE), is dwindling materially. For example, visible silver inventories on the SGE have fallen to around 494 tonnes currently from a peak of approximately 5,500 tonnes in 2020, representing a drawdown of around 90%. This is particularly important as there is a consistent $10/oz+ premium being paid there over Western pricing.
At the same time, physical offtake remains strong: monthly SGE withdrawals are running at approximately 320 tonnes, implying that the entire current SGE inventory equates to little more than six weeks of demand at prevailing withdrawal rates. This indicates that China’s primary physical silver exchange is now operating with an exceptionally thin buffer of silver inventory.
Conditions at the SHFE are similar. Deliverable (on-warrant) SHFE silver inventories currently stand at 455 tonnes, down from around 900 tonnes in 2020, a decline of around 50%. Combined, total visible silver across China’s two main exchanges therefore amounts to 948 tonnes.3
This represents a limited cushion, even under conservative assumptions. At current withdrawal rates, China’s visible exchange inventories would suffice for only two to three months. In many ways this is where the real action is, and where market attention ought to now be, rather than scrutinising daily COMEX/CME inventory reports. It is only natural that Western investors would obsess over CME holdings as it is unlikely that any of the metal in Shanghai will be coming back West any time soon.
Chart 1, Silver inventories at the Shanghai Gold Exchange and the Shanghai Futures Exchange 2018-2026 (measured in tonnes)
Chart 2, CME registered silver inventories 2018-2026 (measured in ounces)
More than ever before the theme of physical silver shortages in the face of rising demand has caught the attention of the investment world; Eastern physical demand versus Western paper pricing. The biggest difficulty in explaining what is going on centres on the opaque spread between the physical silver markets of China and India and all the varied synthetic paper pricing versions.
Critical mineral
Investors tend to think of physical silver or futures, but the previously mentioned ‘Loco London’ over-the- counter spot silver market, a mainly “unallocated’’ fractional reserve system, adds complexity to this topic. Historically, if industrial users or investors wanted delivery of large amounts of physical silver, the London market was the first port of call, the engine of the overall market.
With regard to silver and investment, it is important to recognise that outcomes may differ materially from expectations. Silver’s growing industrial demand also makes it more cyclical and sensitive to changes in economic conditions and investor sentiment. More broadly, price performance in monetary metals and related equities depends not only on physical supply and demand but also on capital flows, market confidence and macroeconomic developments, all of which can change quickly.
We believe that old assumptions of pricing and availability are not working for silver. The rise of Chinese silver demand, both for investment purposes and industrial usage, alongside persistent investment demand in India has created a silver market with increasingly powerful demand fundamentals and yet increasingly weak architectural integrity for supply.
The shift from paper to physical metal is on and is accelerating, in our view. We retain a watching brief and expect the market’s demand to “Bring me my silver – now” will remain firmly in place for the foreseeable future.
Footnotes
1A futures contract is a legally binding agreement to buy or sell a commodity or financial instrument in a designated future month at an agreed price. First day notice is the first day on which notices of intent to deliver the commodities or financial instruments against futures are authorized. CME technical glitch, see Financial Times, as at 25.2.2026. https://www.ft.com/content/d3fe28d9-ec71-45fb-8574-de4922d04482
2US Geological Survey press release. 14.11.25 https://www.usgs.gov/news/science-snippet/interior-department-releases-final-2025-list-critical-minerals
3Source: Shanghai Gold Exchange and Shanghai Futures Exchange, at 31.01.26. The 350 tonnes approximately is the aggregate of the inventories at those two exchanges.
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