Silver’s Holiday Basis: China’s Premiums Ignite, Vaults Drain, and Two Curves Tell One Story
Copy link
The silver market didn’t take a holiday. It staged one. Over the last stretch into year-end and the first days after, the plumbing—not the headlines—did the heavy lifting. Shanghai’s spot premium tore higher, vault balances flipped from steady rebuild to outright draw, and the forward curves on both sides of the Pacific sent a clear, if asymmetrical, message: near-date ounces still command respect. Even as COMEX backwardation has marginally eased from New Year’s Eve extremes, Shanghai’s term structure stayed tight, and the China–LBMA basis climbed to levels that force decisions. If you sell metal, you feel it in the phones. If you buy metal, you feel it in the price. Either way, the market is telling you to think in basis and bar flow, not just in spot.
The simplest, loudest signal arrived in the Shanghai–London spread. What began as a firm positive basis turned into a stampede. Silver premiums in China “blasted higher,” settling at roughly +12.5%—about US$9.56/oz above LBMA at the peak. Before that surge, a still-hefty +7.3% (~US$5.43/oz) close had already set the tone. You don’t see a double-digit premium in a G7-sized market unless two conditions align: local immediacy is scarce, and import parity is willing. Both were true.
Premiums of that magnitude aren’t a euphemism for sentiment; they are a ruler for logistics. Fabricators, wholesalers, and investment channels in China are bidding for certainty now, and the structure is paying them to accelerate procurement. That premium becomes a magnet for metal elsewhere—especially London and Swiss refinery output—so long as the friction costs (time, transport, insurance, compliance) can be covered inside the spread. When spots print US$80-plus onshore and US$9-plus over LBMA, the trade writes itself for the fastest pipes.
For the reader, the practical benefit is obvious: a positive and expanding China premium is a high-confidence tell that near-term imports have economic room. If you’re a buyer of wholesale product in Asia, the premium curve helps you time restocks; if you’re a dealer elsewhere, it tells you when not to be cute with replacement cost.
The ledger corroborated the premium. After four consecutive weeks of accumulation, Shanghai’s exchange vaults flipped to outflow. One snapshot showed –64 tonnes week-to-date to 756 tonnes. The pace quickened: –128 tonnes WTD to 692 tonnes, the largest weekly draw in nine weeks. Most recently, balances registered around 900 tonnes (≈28.9 Moz) week-on-week higher—but even that strong W/W print came with a –12.53-ton daily dip, proof that in a tight system, flow is jagged rather than smooth.
There’s no paradox here. In the same way a reservoir can fill during a storm and drain quickly when gates open, inventories can both rise into a premium (as imports arrive and restocks continue) and fall sharply when end-users and investors pull. The direction of price while balances wobble tells you which force is winning. It wasn’t theory that pushed China’s premium to +12.5%; it was bars leaving shelves faster than they could be replaced.
For practitioners, this is more than color. Watching vault balances through the week offers a forward cue about immediate tightness. Consecutive large outflows paired with stubbornly positive premiums are a green light for bring-forward procurement and a yellow light against short-dated shorting.
Term structures told the same story in two dialects. Into year-end, COMEX backwardation intensified: the Mar ’26 line printed around –US$0.74/oz vs spot, and May ’26 traded –US$0.20/oz—later deepening to –US$0.38/oz on New Year’s Eve for May. That is the market paying a convenience yield for near-date ounces. In the very latest prints, that backwardation has marginally decreased: Mar ’26 ≈ –US$0.38/oz (less negative than NYE), and May ’26 flipped to contango around +US$0.19/oz after previously trading –US$0.38/oz at year end. The easing is notable, but not defining: near-date tension cooled; it did not vanish.
Shanghai, meanwhile, kept its grip. On the SHFE the Aug ’26–Feb ’26 spread widened to about –¥46/kg, a clear backwardation across the medium-deferred wing of the curve. That’s a different geometry from COMEX’s slight relaxation and reminds us that regional plumbing governs term structure. China’s curve is telling you exactly what the premium said: immediacy trumps patience onshore, with deferred contracts pricing a discount to the cash hunger.
The benefit to the reader is practical: price conclusions are dangerous without curve context. A pop in spot with flattening backwardation often signals import relief; a pop with re-widening backwardation says the squeeze lives in the front. Right now those dials say China’s front remains tight; the U.S. front is merely less tight than the year-end extremes.
A quick translation, because vocabulary pays rent:
At New Year’s Eve, silver wore backwardation on both venues (heaviest in the U.S. front). Today, COMEX has eased a touch while SHFE backwardation remains pronounced. If you’re forecasting direction, the takeaway is not “backwardation equals up only”; it’s that tight fronts resist deep pullbacks until something changes in the vaults or in the import math. For hedgers and dealers, it’s the difference between pricing aggressively for immediacy and allowing carry to do some work.
We didn’t get specific EFP prints in the latest set, but the Exchange-for-Physical is still the best bridge to watch. EFP is the market’s negotiated price to swap a futures position for physical off-exchange. Think of it as the toll on the road between paper and bars. When EFPs in the front compress toward zero or negative, the system is signaling spot stress; when they widen positive out the curve, the system is charging for time.
Tie that to what we know now:
Shanghai backwardation (Aug ’26–Feb ’26 ≈ –¥46/kg),
Vault outflows (as steep as –128 t WTD, a nine-week worst),
COMEX backwardation easing but still negative in Mar ’26.
If you see front-month EFPs stay tight or go more negative while those conditions hold, the market is telling you it will reconcile tightness via higher spot rather than by subsidizing carry. If, instead, EFPs widen positive as imports arrive and vaults stabilize, the market will let time rebuild the cushion and spot can pause without surrendering the trend. The advantage to you is obvious: the EFP tells you how tightness will resolve before the tape prints it.
Into New Year’s Eve, COMEX screamed scarcity: Mar ’26 –US$0.74/oz, May ’26 –US$0.20/oz, later –US$0.38/oz. Since then, the panic has cooled: Mar ’26 –US$0.38/oz; May ’26 +US$0.19/oz (contango). That relaxation implies two things. First, import flow likely improved or at least became more certain. Second, dealer books got more comfortable rolling time.
What didn’t change is the China story. The premium exploded as high as +12.5%; the vaults bled on net; the curve stayed backwardated. Even a single strong inventory build doesn’t undo the structural read when it’s followed by multi-day draws. The asymmetry between an easing COMEX and a sticky-tight SHFE is the whole story: near-date is still precious where the door is smallest.
It’s tempting to frame any backwardation-and-premium episode as “just speculators.” The data argue otherwise. Premiums at +7.3% and +12.5% are fabricator and wholesale numbers as much as investor numbers. Vault outflows in the –64 t to –128 t WTD range are order-book realities, not just paper shuffles. Specs magnify moves—especially via the options complex when implied volatility is elevated—but this tightness lives in the physical pipe. That makes it stickier. Time alone doesn’t fix it; stock and imports do.
The benefit to you is that stickiness improves the signal-to-noise ratio. In pure speculative squeezes, curves and premiums can snap back overnight. In physical tightness, mean reversion requires inventory.
With the caveat that no one owns the future, the plumbing supports two credible paths.
Path A: Spot does the heavy lifting
Shanghai premiums stay lofty, vaults stabilize only gradually, and the SHFE backwardation persists. COMEX keeps easing but refuses to flip deep contango in the front. EFPs in the near-dates stay tight. In that world, global spot grinds higher to pull arbitrage metal toward China and narrow the most egregious basis gaps.
Path B: Carry carries
A run of import arrivals into China boosts on-shore balances for more than a few days; the SHFE backwardation narrows; the premium cools from double digits toward the low single digits. COMEX front flattens and May stays modest contango. In that world, spot consolidates while the curve absorbs tightness through time.
The advantage to the reader is that both paths are tradable and hedgeable if you respect the sequence. The wrong move is to assume a destination and ignore the mechanism (basis, vaults, EFP).
For bullion dealers and fabricators
This is a replacement-cost market. Quote availability and certainty. Stage product where lift-out is clean and shipping lanes are reliable—Singapore and London remain best-in-class—and resist the urge to under-hedge time because COMEX eased a touch. Your clients will pay for “bars now”; the curve is charging for “bars later.” Your edge is holding the former while responsibly covering the latter.
For conservative allocators (PMETs, civil servants, family offices)
Ladder purchases. The premium and backwardation say the risk of being under-allocated outweighs the risk of buying a marginally higher print. Avoid leverage; own fully allocated metal in rule-of-law vaults. Let the term structure and our basis tools do the work of timing urgency; your job is to own ounces before the premium or EFP forces you to pay more for the same object.
For hedgers with near-dated liabilities
The easing in COMEX is a gift. With Mar ’26 less negative and May ’26 toggling back to contango, you can roll shorts or build collars without paying December’s peak convenience yield. But don’t extrapolate U.S. comfort onto China. If your exposures are Asian-centric, hedge where you live; SHFE backwardation still prices a front-loaded risk.
For momentum traders
Recognize that elevated implied vol and a premium-driven tape equals path dependency. Expect air pockets near obvious strikes and whips around vault headlines. Trade smaller than your instincts suggest and let the EFP tell you when you’re trading price versus time.
You don’t need new indicators; you need discipline with the ones that work.
The benefit to the reader is that these are observable and actionable. They help you plan, not predict.
Tight episodes like this rewire the market in three durable ways. First, they re-anchor inventory norms; dealers carry a bit more because they remember what it felt like to be short availability. Second, they educate public flow; ETFs and trust vehicles see inflows as investors learn that allocated exposure changes the game. Third, they force the curve to re-price time; even after the crisis passes, carry seldom returns to the old mean immediately.
For readers looking for an advantage, that means your preparation pays twice: once in the episode and again in the way the market behaves afterward.
That’s not a narrative. It’s a map. Follow it and you’ll know when to buy certainty, when to sell time, and when to stand still because the curve is doing your job.
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.
Latest articles
Tool and strategies modern teams need to help their companies grow.
Invite users to stay updated with exclusive insights and market trends by subscribing to the newsletter.
Start stacking your bullion. Download the InProved app and build your legacy in gold and silver.
+65 8899 3720
support@inproved.com