Silver’s Forced Reset: Price Collapse, Positioning Unwind, and Continued Physical Drain
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Silver’s recent price action reflects a sharp and measurable reset across multiple layers of the market, combining macro pressure, positioning reduction, and continued physical inventory movement. Over the latest week, silver declined 15.75%, with spot prices reaching approximately $79.25 per ounce. The decline coincided with a combination of Federal Reserve hawkishness, expectations of a single rate cut, and widespread forced liquidations triggered by margin calls.
At the same time, the London silver “free float” increased by 5.64 million ounces, equivalent to approximately 175 metric tons, bringing total free float to 6,622 tons. In parallel, COMEX inventories continued to decline, with a weekly reduction of 6.88 million ounces (214 tons), followed by an additional 4.5 million ounce (140 ton) reduction week-to-date.
Positioning data confirms the scale of the unwind. Managed money net long positions declined to 9,647 contracts, down 6.25% week-on-week, significantly below the 50,000+ contract levels observed during prior bullish cycles. On the Shanghai Futures Exchange, silver open interest fell to 458,621 contracts, marking the lowest level recorded since November 2015.
Despite the price decline and positioning reduction, physical demand remains measurable. China imported over 790 tons of silver during the first two months of the year, including nearly 470 tons in February alone — the highest February figure recorded.
These figures collectively describe a market undergoing a sharp deleveraging phase while physical demand and inventory flows continue to evolve.
Options positioning on the Shanghai Futures Exchange provides further detail on how participants are adjusting to the recent price decline. The June 2026 silver contract closed at CNY 17,625 per kilogram, equivalent to approximately $79.6 per ounce. At the same time, the weekly open interest heat map shows a redistribution of positioning across strike levels rather than concentration at a single price point. The 20,000 CNY level remains the primary concentration zone, with a net addition of 6,030 call contracts against a reduction of 2,995 put contracts, indicating continued activity around that level. However, downside hedging has shifted lower. Put open interest increased by 3,182 contracts at the 17,000 strike and by 2,691 contracts at the 16,000 strike, while the 18,000 strike saw a reduction of approximately 3,500 contracts.
This migration of put positions to lower strike levels indicates that market participants have adjusted their downside expectations, extending the range of potential price outcomes.
Silver declined 15.75% over the week, with spot prices falling to approximately $79.25 per ounce. The decline occurred alongside macro developments, including a stronger U.S. dollar and rising yields following Federal Reserve signaling of a more hawkish policy stance.
The combination of higher yields and currency strength creates a measurable headwind for precious metals pricing. At the same time, the speed of the decline indicates that forced liquidations played a significant role. Margin calls and position unwinds typically amplify price moves beyond what macro factors alone would produce.
The magnitude of the weekly decline reflects both macro pressure and mechanical liquidation effects within leveraged positions.
In London, the silver free float increased by 5.64 million ounces, equivalent to approximately 175 tons, bringing the total to 6,622 tons.
The increase in free float reflects the release of metal into the broader vault system, potentially linked to ETF redemptions or repositioning of physical holdings. Free float represents silver that is not tied to ETF custody and is therefore available for delivery or industrial use.
The increase in free float occurs alongside continued COMEX outflows, illustrating differing inventory dynamics across regions.
Commitment of Traders (COT) data provides a clear view of the positioning shift. Managed money net long positions declined to 9,647 contracts, representing a 6.25% reduction week-on-week.
This level is significantly lower than historical benchmarks. During previous bullish phases, managed money net long positions exceeded 50,000 contracts. The current figure indicates that speculative participation has reduced substantially.
At the same time, swap dealers increased their coverage of short positions, indicating that some counterparties have reduced hedging exposure.
The combined effect is a reduction in speculative long positioning alongside a partial covering of short positions, resulting in a lower overall leverage profile in the market.
COMEX silver inventories continue to trend downward despite the price correction. During the latest reporting week, inventories declined by 6.88 million ounces, equivalent to approximately 214 metric tons.
Subsequent data shows an additional reduction of 4.5 million ounces, or 140 tons, on a week-to-date basis.
These figures indicate that physical silver continues to leave COMEX vaults even as prices decline. The persistence of outflows during a price correction suggests that inventory movement is not solely driven by speculative demand.
On the Shanghai Futures Exchange, silver open interest declined to 458,621 contracts, marking the lowest level recorded since November 10, 2015. The figure represents a 5% week-on-week reduction.
Each SHFE silver contract corresponds to approximately one kilogram, implying roughly 458 tons of notional exposure. The decline in open interest indicates that futures positions are being closed rather than expanded.
The June 2026 SHFE silver contract closed at approximately CNY 17,625 per kilogram, equivalent to $79.6 per ounce on a COMEX-adjusted basis, aligning closely with global spot pricing.
The contraction in open interest reflects reduced participation in leveraged futures positions within the Chinese market.
Physical demand data continues to show strong activity. China imported over 790 metric tons of silver during the first two months of the year. February alone accounted for nearly 470 tons, representing the highest February import level recorded.
These figures quantify physical demand independent of futures positioning. Imports of this scale indicate sustained consumption or accumulation within the Chinese market.
At the same time, SHFE inventories have increased from recent lows, rising approximately 42.5% over a two-week period to around 365 tons. Weekly inflows totaled 38.3 tons, with daily inflows reaching approximately 18 tons.
Despite the increase, inventory levels remain near decade lows, indicating that recent inflows have not fully offset prior depletion.
Silver premiums in China have moderated but remain elevated. Recent pricing shows silver trading at approximately $81.8 per ounce in Shanghai compared with $73.2 per ounce in London, representing a premium of roughly 11.75%.
The narrowing of premiums from higher levels indicates some easing in price divergence, but the persistence of double-digit percentage premiums reflects continued differences between regional supply and demand conditions.
Exchange for Physical (EFP) spreads on COMEX have also tightened. The May 2026 contract is approaching backwardation, indicating that the premium for immediate delivery is increasing relative to future delivery.
Tightening EFP spreads quantify rising demand for near-term physical settlement within the futures market structure.
Options data on SHFE reflects differing short-term and long-term positioning. The put/call volume ratio stands at 1.54, indicating higher demand for downside protection in the immediate term. This figure sits near the 98.85th percentile of its 52-week range.
At the same time, the put/call open interest ratio is 0.78, placing it near the 4.23rd percentile. This lower ratio indicates that longer-term positioning still favors upside exposure.
The difference between volume-based and open interest-based ratios reflects short-term hedging activity within a longer-term positioning framework.
For bullion dealers, the key figures remain COMEX inventory declines and Chinese import volumes. With COMEX inventories declining by over 6.8 million ounces in a week and China importing over 790 tons in two months, physical flows remain active across regions.
For conservative investors, positioning data provides a measurable indication of reduced speculative participation. Managed money net long positions at 9,647 contracts and SHFE open interest at 458,621 contracts represent historically low levels of leveraged exposure.
For traders, volatility and futures spreads define the environment. A weekly price decline of 15.75%, tightening EFP spreads, and implied daily price swings driven by high volatility levels indicate a market undergoing rapid adjustment. Monitoring whether backwardation develops in near-term contracts will provide further signals on physical demand conditions.
Across price action, positioning data, and inventory movements, the current figures describe a silver market experiencing a sharp deleveraging phase while physical demand and supply flows continue to operate at scale.
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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