Silver Finds Its Balance: Chinese Buying Persists While Physical Demand Normalizes
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Silver continues to navigate a fascinating transition. Earlier this year, the market was dominated by record inventory withdrawals, widening physical premiums, and fears of an immediate supply squeeze. Today, the landscape looks more balanced. Prices remain volatile, inventories are no longer collapsing at the same pace, and options markets suggest investor sentiment is gradually stabilising. Yet beneath this calmer surface, physical demand continues to show remarkable resilience, particularly in China.
The latest data presents a market sending mixed but informative signals. Shanghai Futures Exchange (SHFE) inventories continue to edge lower, London ETF holdings have started to recover, and Chinese silver premiums remain firmly above international benchmarks at around 11.5–12%. Meanwhile, June withdrawals from the Shanghai Gold Exchange (SGE) fell to their weakest level since at least 2018, highlighting that the explosive physical buying seen earlier this year has cooled significantly.
Rather than signalling weakness, these developments point toward a silver market that is gradually moving away from crisis conditions and into a more sustainable equilibrium. The extreme physical tightness has eased, but buyers continue to emerge whenever prices soften, while derivatives markets are becoming progressively less defensive than they were only a few weeks ago.
Perhaps the most important development this week comes from China’s physical market.
June silver withdrawals from the Shanghai Gold Exchange totaled just 63 metric tons, representing the weakest June reading since at least 2018. Compared with June 2025, withdrawals fell by an extraordinary 62.3%, marking one of the sharpest year-on-year declines recorded in recent years.
At first glance, those figures appear bearish. However, context matters.
May’s withdrawals had collapsed to an exceptionally weak 21 tons, meaning June still recorded a 200% month-on-month recovery despite remaining historically subdued. Rather than indicating collapsing demand, the latest data suggests that the exceptional buying frenzy witnessed throughout 2025 and early 2026 has finally begun to normalize.
Markets rarely sustain record physical buying indefinitely. Following months of extraordinary inventory accumulation by consumers, manufacturers and investors, periods of moderation are both expected and healthy.
Importantly, prices continue to attract buyers despite this slower withdrawal pace, suggesting that underlying demand remains intact even if the urgency has faded.
If withdrawal data reflects moderation, pricing tells a different story.
Silver continues trading at approximately 11.5% to 11.95% above LBMA prices within China’s domestic market. At the same time, gold has largely returned to parity with London, trading only marginally above international benchmarks.
This divergence between gold and silver is particularly revealing.
Gold’s premium returning to near zero suggests that domestic supply conditions have largely normalized. Silver, however, continues commanding a double-digit premium despite the significant slowdown in exchange withdrawals.
That indicates Chinese buyers remain willing to pay substantially above international prices for immediate physical silver.Had demand deteriorated materially, premiums would almost certainly have compressed much more aggressively.
Instead, the market continues demonstrating that while buying activity has become more measured, physical silver remains considerably tighter than international pricing alone would imply.
Inventory movements reinforce that conclusion.
SHFE silver stocks declined by approximately 8.3 tons over the latest reporting week, leaving total exchange inventories at roughly 834.7 tons, equivalent to approximately 26.8 million ounces. Subsequent updates showed inventories easing further to approximately 822.7 tons after another weekly decline exceeding 20 tons.
Although Friday recorded a modest daily inflow of 6.8 tons, the broader trend remains one of gradual inventory tightening rather than sustained replenishment. Unlike the dramatic warehouse swings witnessed earlier this year, today’s movements are considerably smaller and more orderly.This suggests the market has entered a more balanced phase where inventories fluctuate around stable levels instead of experiencing the extreme depletion or aggressive restocking seen previously.
That stability may ultimately prove healthier for long-term price discovery.
Developments in London provide another useful contrast.
Physically backed silver ETFs increased holdings by approximately 1.3 million ounces, or 40.7 metric tons, bringing total ETF inventories back to approximately 20,456 tons. As ETF holdings expanded, estimated free float tightened modestly to approximately 7,155 tons, or roughly 230 million ounces.
The rebound followed weaker-than-expected U.S. employment data, which reduced immediate concerns that the Federal Reserve might need to maintain an aggressively restrictive policy stance. Rather than triggering speculative buying, the softer macro data appears to have encouraged a measured return of long-term investors to physically backed products. The move remains relatively modest, but it is noteworthy because it occurred after an extended period of profit-taking and ETF outflows.
It suggests institutional investors remain willing to increase exposure when macroeconomic conditions become slightly more supportive.
The derivatives market has also become noticeably calmer. Recent updates show that implied volatility skew for SLV options continues recovering, indicating that the substantial premiums previously attached to downside protection are beginning to fade.
In practical terms, investors are no longer paying as aggressively for protection against further declines.
Positioning across the SHFE options market tells a similar story. The largest concentration of new call open interest has emerged around the 15,000 CNY strike, approximately 7% above current spot levels. Meanwhile, put activity has become concentrated around the 13,100 and 14,000 CNY strikes, effectively defining the market’s perceived trading range.
This type of positioning is characteristic of consolidation rather than panic. Participants appear increasingly comfortable trading within a defined range while waiting for the next significant macro catalyst.
The latest inventory figures also highlight silver’s increasingly balanced global supply picture.
Total reported worldwide inventories currently stand at approximately 39,469 metric tons. London continues dominating visible stocks with approximately 27,611 tons, representing nearly 70% of total reported inventories. COMEX accounts for another 10,032 tons, or roughly one-quarter of global stocks, while China’s SGE and SHFE together represent less than 5% of visible global inventory.
Although China’s exchange inventories remain comparatively small, they continue exerting an outsized influence on pricing through persistent physical premiums.
Meanwhile, COMEX Exchange for Physical (EFP) spreads have continued grinding modestly higher, with July contracts trading approximately $0.03 above LBMA spot and September contracts around $0.45 higher.
These spreads remain relatively modest compared with the extreme conditions observed earlier this year, suggesting that immediate supply pressures have eased considerably.
For bullion dealers, the current market increasingly resembles normalization rather than deterioration. Chinese withdrawals have slowed sharply, but domestic premiums remain firmly above 11%, SHFE inventories continue gradually tightening, and London ETF holdings have begun recovering following softer U.S. economic data. Physical demand has clearly moderated from extraordinary levels, yet it remains sufficiently strong to support elevated domestic pricing.
For conservative investors, the latest data presents a healthier long-term picture than recent headlines might suggest. The physical market has transitioned away from the extreme volatility that characterised the first half of the year, while investor fear is steadily fading across options markets. Continued buying on price weakness, combined with relatively stable global inventories, supports the view that silver is building a more sustainable foundation for future appreciation rather than experiencing structural demand destruction.
For traders, silver appears increasingly locked in a well-defined consolidation phase. SHFE options positioning identifies approximately 13,000 CNY as an important downside support zone and 15,000 CNY as the first significant resistance. Similarly, SLV continues finding support near the psychologically important $50 level while struggling to establish momentum above recent technical resistance. Unless a major macro catalyst emerges, range trading is likely to dominate in the near term.
Looking further ahead, however, the longer-term outlook remains constructive. Physical premiums across China continue exceeding 11%, ETF investors have begun returning after recent corrections, and downside hedging activity is gradually subsiding. If inflation continues moderating, monetary policy eventually shifts toward easing, and industrial demand stabilises during the second half of the year, silver could gradually recover toward the $75–85 per ounce range before potentially challenging the $90–100 region over the next major cycle. The explosive shortages seen earlier this year may have eased, but the structural drivers supporting silver—including industrial consumption, investment demand, and constrained physical availability—remain firmly in place.
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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