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In a week where gold’s Exchange for Physical (EFP) spreads widened significantly, reflecting tightening liquidity and demand for physical metal, silver is telling a somewhat different story. Hugo Pascal, Chief Investment Officer at InProved, has been closely tracking the developments, and the contrasting dynamics between gold and silver suggest that the precious metals market is undergoing a major shift.
Gold’s EFP spreads have continued their expansion, with the April 2025 COMEX-Spot XAUUSD spread reaching $18.2 per ounce and the June-April 2025 COMEX spread now at $27.2. The growing discrepancy between futures and spot prices signals a tightening physical market, reminiscent of past liquidity crunches.
Historically, we’ve seen similar disruptions during major financial events, such as the 2008 financial crisis and the 2020 COVID-19-induced supply chain breakdown. In both cases, gold EFP spreads widened as investors rushed to secure physical metal while logistical constraints prevented easy delivery. However, what makes this instance unique is the backdrop of persistent inflation, central bank accumulation of gold, and structural supply limitations that are keeping premiums elevated despite relatively stable gold futures trading.
Investment banks and large institutions use EFPs to manage their exposure to gold, transitioning between paper and physical holdings depending on market conditions. When EFP spreads widen, it often reflects increasing costs of acquiring physical gold, making it more attractive for investors to hold deliverable metal instead of futures contracts. This has historically been a precursor to price appreciation, as liquidity constraints can lead to further upside pressure.
However, while gold is experiencing a structural shift in the availability of physical supply, silver appears to be moving in the opposite direction.
Unlike gold, where demand for physical settlement is driving up EFP spreads, silver is exhibiting mixed signals across global markets.
On the Shanghai Futures Exchange (SHFE), the Put/Call Volume Ratio has dropped to 0.74, the lowest level in three and a half months. This suggests that bullish sentiment is increasing among silver traders, with fewer investors hedging against downside risk. At the same time, however, a major shift has occurred in physical holdings. Shanghai vaults saw a significant 194-ton withdrawal, reducing total inventory to 1,247 tons (40.1 million ounces). This marks the largest single withdrawal since January 2024, suggesting strong industrial or institutional demand.
Such large withdrawals often indicate that silver is being pulled out of exchange vaults to meet real-world demand, whether for manufacturing, investment, or delivery to other markets. Given China’s importance as a key player in the global silver supply chain, this move could signal tightening availability in the East.
Meanwhile, in stark contrast, COMEX silver vaults have seen continued inflows, with inventories rising by 2.2 million ounces (68.43 tons) on Friday, bringing total stockpiles to 380 million ounces. Month-to-date, COMEX has absorbed 653 tons, while January 2025 inflows totaled 1,244 tons.
This divergence between Shanghai and COMEX raises important questions about silver’s underlying market structure. While Chinese vaults are experiencing withdrawals, U.S. inventories are swelling, reflecting potential shifts in supply routes or differing investor behavior across regions. The accumulation at COMEX suggests that traders are preparing for increased futures activity, possibly anticipating greater demand for deliverable silver in the months ahead.
The contrasting trends in gold and silver suggest that while both metals are experiencing shifts in market structure, they are not necessarily moving in the same direction.
For gold, the widening EFP spreads and sustained physical demand indicate a market under increasing pressure. The difficulty in sourcing deliverable gold may continue to drive premiums higher, creating a bullish tailwind for prices. The fact that central banks remain aggressive buyers only adds to this momentum, reinforcing the idea that gold is in a long-term accumulation phase.
Silver, on the other hand, is exhibiting a more fragmented market. The withdrawals in Shanghai suggest strong demand in Asia, but the consistent inflows at COMEX point to a different dynamic—perhaps more speculative positioning rather than immediate physical tightness. This divergence raises the possibility that silver’s next major move will be determined by where demand tightens first: if COMEX inventories begin to decline in tandem with Shanghai, the metal could see a breakout similar to gold.
Hugo Pascal’s analysis highlights a critical moment for both metals. While gold is dealing with physical constraints and rising premiums, silver’s supply and demand signals are not yet aligned in the same way. However, history has shown that silver often follows gold’s lead, sometimes with a lag. The coming months will determine whether silver catches up to gold’s bullish trajectory or continues to chart its own path, dictated by regional market forces.
For now, the story unfolding in the precious metals market is one of divergence—gold showing increasing physical scarcity, while silver’s liquidity remains more fluid, at least in the West. But as past market cycles have shown, when these two metals finally move in sync, the results can be explosive.
Hugo Pascal’s observation about the AU9999 contract hitting a 10-week volume high underscores the increasing significance of physical gold trading on the Shanghai Gold Exchange. This trend not only highlights robust domestic demand in China but also reflects broader shifts in the global gold market toward physical-backed assets.
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