Silver’s Paper Panic Meets Physical Stability: Prices Fall, Inventories Diverge, and Long-Term Buyers Quietly Return
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Silver has endured one of its sharpest corrections of the year, yet the underlying physical market continues to paint a far more resilient picture than futures prices alone would suggest. Spot silver fell more than 9% during the week, Shanghai futures plunged to a six-month low, and options traders aggressively increased downside protection. However, physical inventories across the world’s major exchanges have behaved very differently.
COMEX has now recorded five consecutive weeks of inventory inflows, while London ETF holdings have remained remarkably stable despite the sharp decline in prices. At the same time, Shanghai inventories continue to move in the opposite direction, recording a sixth straight week of withdrawals. Chinese premiums have also remained firmly positive at around 11% above LBMA prices, indicating that physical buyers continue paying well above international benchmarks despite the recent sell-off.
The result is a silver market that appears deeply bearish from a sentiment perspective but considerably more balanced from a physical supply perspective. Investors have become increasingly defensive, yet physical demand has shown little evidence of widespread capitulation. Instead, the latest data suggests that while paper markets are reacting aggressively to macroeconomic uncertainty, physical buyers continue treating price weakness as an opportunity rather than a reason to exit the market.
One of the more surprising developments this week came from the COMEX vault system.
Exchange inventories increased for a fifth consecutive week, with vaults adding another 45.6 metric tons, or approximately 1.47 million ounces. Total reported silver stocks now stand at approximately 323.4 million ounces.
A sustained series of inventory increases normally suggests that supply conditions are becoming more comfortable. Earlier this year, COMEX inventories experienced persistent drawdowns as physical metal left exchange vaults. The recent reversal indicates that inflows have begun offsetting those earlier withdrawals. This rebuilding process reduces immediate concerns about physical availability within the U.S. futures market. However, inventory growth alone does not necessarily imply weakening demand. It simply indicates that supply has recently been arriving faster than exchange withdrawals.
When viewed alongside developments elsewhere, the COMEX figures tell only part of the broader global story.
The behavior of physically backed silver ETFs provides another useful measure of investor conviction.
Despite silver prices falling more than 9% during the week, London ETF holdings declined by only 23.8 metric tons, leaving total assets at approximately 656.6 million ounces. Subsequent trading following the release of in-line U.S. PCE inflation data even produced a modest rebound, with assets under management increasing by 70.8 tons to approximately 658 million ounces while estimated free float tightened to roughly 7,146 tons.
Although another weekly update later showed ETF holdings easing by approximately 55 tons to 655.7 million ounces, the overall picture remains remarkably stable considering the magnitude of the price correction.
Had investors been abandoning silver aggressively, much larger outflows would likely have occurred. Instead, ETF holdings have fluctuated within a relatively narrow range while prices experienced significant volatility.
This suggests that long-term investors remain considerably more patient than short-term futures traders.
While inventories have increased in the West, China’s exchanges continue moving in the opposite direction.
Combined silver inventories across the Shanghai Futures Exchange and Shanghai Gold Exchange currently stand at approximately 1,810 metric tons, or roughly 58.2 million ounces. Within that total, SHFE inventories account for approximately 843 tons while SGE holdings stand at around 967 tons.
More importantly, SHFE inventories have now recorded six consecutive weeks of withdrawals. Stocks declined another 25.5 tons during the latest reporting period, including a further daily reduction of 5.7 tons.
The broader trend remains even more striking. Shanghai warehouses have now experienced nine consecutive trading days of inventory declines, with total holdings falling to approximately 843 tons.
These persistent withdrawals suggest that physical demand continues absorbing available inventories despite considerable weakness in futures prices. While Western exchanges have experienced inventory rebuilding, China’s domestic market continues drawing metal out of storage.
The divergence between East and West remains one of the defining themes within today’s silver market.
Another indication that physical demand remains healthy is the resilience of Chinese premiums.
Silver continues trading at approximately 11% above LBMA benchmarks despite the significant correction in global prices. Normally, sharp declines in futures markets would be expected to reduce physical premiums as buyers step back from the market.
Instead, Chinese buyers continue demonstrating a willingness to pay well above international prices for immediate delivery.
The persistence of these premiums reinforces the inventory data. Physical demand has weakened far less than futures prices imply.
Earlier in the year, elevated premiums reflected acute supply tightness. Today, they increasingly reflect resilient demand in a market where inventories are still being steadily drawn down despite improving global supply conditions.
If physical markets have remained resilient, derivatives markets continue reflecting considerable caution.
Silver futures on the SHFE fell 7.62% to approximately 13,811 CNY per kilogram, equivalent to roughly $63.12 per ounce on a COMEX-adjusted basis. The move pushed prices to their lowest level in six months.
Options activity became increasingly defensive following the decline. The dominant put wall shifted lower to the 13,000 CNY strike, while the put-call volume ratio climbed to 1.33, highlighting substantial demand for downside protection.
Meanwhile, implied volatility continues displaying a similar pattern in global markets. Gold and silver both exhibit elevated put premiums, with 25-delta skew remaining firmly negative. Investors continue paying more for downside insurance than upside participation.
Interestingly, this defensive positioning has not prevented occasional relief rallies. Following U.S. PCE data that largely matched expectations, silver experienced a classic oversold bounce, reminding traders how quickly sentiment can shift when macroeconomic surprises fail to materialize.
The options market therefore reflects caution rather than outright panic.
Shanghai’s forward curve offers another perspective on current market conditions.
Silver remains firmly in contango, with Ag(T+D) spot prices trading below SHFE futures contracts across the curve extending into 2027. The spread between SGE spot and SHFE futures remains relatively tight at approximately 44 CNY per kilogram.
Contango typically indicates that immediate physical shortages have eased compared with earlier periods characterized by backwardation.
This aligns with the recent rebuilding of inventories seen across parts of the global market. While China continues withdrawing metal from warehouses, the broader supply picture has improved enough that futures prices once again command a premium over immediate delivery.
Importantly, contango does not necessarily indicate weak demand. Rather, it suggests that supply conditions have become sufficiently balanced to restore more normal market pricing relationships.
For bullion dealers, the latest data highlights an increasingly balanced physical market rather than a collapsing one. COMEX inventories continue rebuilding, London ETF holdings have remained remarkably resilient, and Chinese premiums remain firmly above international benchmarks despite recent price weakness. Physical demand appears considerably stronger than paper market sentiment currently suggests.
For conservative investors, the sharp correction has significantly improved long-term entry conditions. Physical premiums have moderated from earlier extremes while remaining positive, ETF investors have largely maintained their holdings, and Chinese inventories continue declining despite weaker prices. These are not characteristics typically associated with structural demand destruction. Instead, they suggest that long-term buyers continue accumulating during periods of market weakness.
For traders, the near-term outlook remains highly dependent on macroeconomic developments, particularly Federal Reserve policy, inflation expectations, and the U.S. dollar. The defensive options positioning indicates that volatility is likely to remain elevated, while the 13,000 CNY put wall and broader support around the $60–63 per ounce region will remain critical levels to monitor. A sustained break below those levels could invite another wave of systematic selling, although the current oversold backdrop increases the likelihood of sharp countertrend rallies.
Looking further ahead, the longer-term picture remains cautiously constructive. Physical demand in China remains resilient, inventory withdrawals continue across Shanghai, and global ETF investors have shown little appetite for large-scale liquidation. If monetary policy begins easing later in the cycle and industrial demand stabilizes, silver could gradually recover toward the $75–85 per ounce region before attempting another move toward the psychologically important $100 level. The current correction appears driven primarily by macro positioning rather than structural deterioration in physical demand, suggesting that while volatility is likely to persist, the longer-term foundation for silver remains intact.
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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