Silver’s Correction Meets Improving Supply, But China’s Premium Says Demand Hasn’t Disappeared
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Silver spent the week caught between two very different narratives. On one side, macroeconomic headwinds continued to weigh heavily on prices as investors reduced exposure ahead of the FOMC minutes, persistent geopolitical uncertainty supported the U.S. dollar, and higher Treasury yields pressured the entire precious metals complex. Spot silver fell to around $60 per ounce, while Shanghai Futures Exchange (SHFE) silver closed 3.1% lower at 14,403 CNY/kg, equivalent to approximately $65.9 per ounce on COMEX pricing. Yet despite this weakness, China’s physical premium remained remarkably resilient at 11.77% above LBMA, while the domestic spot market briefly moved back into backwardation. At the same time, inventories across London and COMEX were beginning to rebuild. Rather than pointing toward another supply crisis, the latest data suggests that silver is transitioning into a market where improving physical availability is meeting resilient Asian demand.
One of the week’s most important developments came from London. The latest June LBMA vault statistics showed total silver holdings increasing by 471 metric tons month-on-month to 28,082 tons, marking the highest inventory level in almost four years. Estimated free float also expanded significantly to approximately 7,659 tons, or around 246 million ounces, representing 27.3% of total London holdings.
Despite spot silver declining almost 4% during the week, physically-backed London ETFs experienced only modest selling. Holdings slipped by just 3.5 tons to around 20,385 tons, while another daily update showed virtually no investor reaction as ETF holdings remained steady at approximately 20,425 tons. The combination of expanding inventories, growing free float and relatively stable ETF ownership suggests that physical supply conditions in London continue to normalize. Earlier this year, every decline in price was accompanied by concerns over physical scarcity. Today, the market appears considerably better supplied.
The U.S. market is also beginning to move away from the inventory depletion story that dominated much of the first quarter. COMEX vaults recorded their largest single-day increase in nearly three months, adding approximately 2.8 million ounces, or 85.2 metric tons, during the week. Total inventories have now recovered to around 326 million ounces, including approximately 93 million ounces registered for immediate delivery and another 233 million ounces held as eligible inventory.
While these figures remain below previous peaks, the direction of travel has clearly changed. After months of almost uninterrupted withdrawals, fresh inflows indicate that refiners, logistics providers and bullion banks are once again replenishing available inventories. This does not necessarily signal weak demand; rather, it suggests that the extreme supply tightness seen earlier this year is gradually easing as physical metal becomes more readily available.
China, however, continues to tell a different story from Western markets. Domestic silver finished the week trading at an 11.77% premium over LBMA prices, even as gold remained essentially flat relative to London with only a 0.07% premium. The willingness of Chinese buyers to consistently pay double-digit premiums highlights that domestic demand remains considerably stronger than international benchmark pricing alone would suggest.
The relationship between Shanghai’s spot and futures markets reinforces that message. The spread between SHFE silver futures and the Shanghai Gold Exchange Ag(T+D) contract has flipped back into slight backwardation, with futures trading around 27 CNY/kg below spot prices. Although far less extreme than the backwardation witnessed earlier in the year, immediate physical silver once again commands a premium over future delivery. This indicates that buyers continue placing greater value on available metal today than promises of delivery later, even as inventories recover.
Inventory movements inside China have become noticeably less dramatic than they were only a few months ago. SHFE inventories declined by approximately 19 tons during one session, leaving total warehouse stocks at around 830 tons, or roughly 26.7 million ounces. Weekly inventories finished lower by approximately 4.9 tons, while another update showed stocks easing to 830.2 tons after a daily decline of almost 19 tons.
Compared with the enormous weekly withdrawals recorded during late 2025 and early 2026, these are relatively modest movements. The large-scale inventory panic appears to have subsided, with warehouse balances now fluctuating within a much narrower range. Rather than signalling renewed supply stress, current inventory changes appear consistent with a market that is searching for equilibrium following one of the largest physical drawdowns in recent years.
Another notable development came from physical withdrawal data at the Shanghai Gold Exchange. June silver withdrawals totaled just 63 metric tons, making it the weakest June reading since at least 2018 and representing a sharp 62.3% decline compared with June 2025. Although withdrawals rebounded almost 200% from May’s exceptionally weak 21-ton reading, overall physical demand remains well below the extraordinary buying surge witnessed throughout 2024 and early 2025.
This moderation helps explain why inventories across both Shanghai exchanges have been able to stabilize. Chinese buyers are still willing to pay substantial premiums over international prices, but the pace of physical withdrawals has slowed enough to allow warehouse stocks to recover gradually rather than continue their relentless decline.
The derivatives market paints a picture of consolidation rather than panic. SHFE August silver futures closed around 14,403 CNY/kg, while the forward curve remained firmly in contango, indicating no immediate shortage of deliverable metal. Options positioning shows resistance building near the 15,000 CNY strike, where open interest increased by more than 1,000 contracts, while downside protection remains concentrated around both the 14,000 and 13,100 CNY put strikes.
Meanwhile, SLV options continue to show declining fear premiums as skew gradually recovers. The market appears less willing to pay elevated premiums for downside protection than it was several weeks ago, suggesting investor sentiment has stabilized even though price action remains range-bound. Rather than positioning aggressively for another collapse, options traders appear to be waiting for the next macro catalyst before committing to a larger directional move.
For bullion dealers, the silver market appears to be entering a healthier phase. Physical supply is rebuilding across London, COMEX and Shanghai, while Chinese premiums remain comfortably above 11%, indicating that underlying demand has not disappeared. Dealers should continue monitoring whether those premiums begin narrowing materially, as that would signal that physical supply is finally catching up with demand across Asia.
For conservative investors, the recent correction has improved the long-term risk-reward profile. Physical market conditions are considerably more balanced than they were during the supply squeeze earlier this year, while macro uncertainty surrounding central bank policy, government debt and industrial demand continues to support silver’s longer-term investment case. Periods of price weakness historically have offered attractive opportunities to accumulate gradually rather than chase momentum after sharp rallies.
For traders, the next several weeks are likely to remain dominated by macroeconomic catalysts, particularly inflation data, Federal Reserve expectations and U.S. dollar strength. In the near term, silver may continue consolidating within the US$58–65 per ounce range as the market absorbs recent volatility. A sustained break back above US$65 would likely encourage momentum buying and reopen the path toward the US$70–75 region, while failure to hold the US$58–60 support zone could trigger another round of technical selling. Looking further ahead into the second half of 2026, if industrial demand continues improving alongside eventual monetary easing, a return toward the previous highs in the US$75–85 range remains a realistic medium-term objective.
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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