Silver’s Price Weakens, But Physical Investors Keep Buying the Dip
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Silver endured another volatile week as macroeconomic headwinds continued to pressure prices, yet the underlying physical market painted a far more resilient picture. Spot silver retreated below US$58 per ounce at one stage, SHFE futures suffered their sharpest daily decline in weeks, and fresh short positions entered the market as traders positioned for further weakness. At the same time, however, physically backed silver ETFs recorded substantial inflows, London’s free float continued shrinking, Chinese silver premiums remained close to 12% above LBMA prices, and inventories across China, London and COMEX all expanded significantly. While the sharp rebound in warehouse stocks may initially appear bearish, the broader multi-year picture suggests the market remains structurally undersupplied, with inventories still only a fraction of the levels seen several years ago.
The biggest development this week came from China’s vault system. Combined inventories across the Shanghai Gold Exchange (SGE) and Shanghai Futures Exchange (SHFE) climbed to approximately 1,977 tonnes, or 63.6 million ounces, marking the highest inventory level recorded in nine months. The increase was driven primarily by the SHFE, where warehouse stocks surged to around 990 tonnes, representing 31.8 million ounces after recording the largest weekly inflow in two years.
The scale of the recovery has been impressive. SHFE inventories increased by approximately 160 tonnes during the latest reporting week, including a single-day inflow of more than 95 tonnes, the largest daily addition recorded this year. Earlier in the week, inventories had already climbed past 932 tonnes, reversing almost five weeks of steady warehouse drawdowns in just a few trading sessions.
Despite these headline gains, it is important to maintain perspective. Even after the recent surge, China’s combined silver inventories remain dramatically below historical levels. In 2021, Chinese vaults collectively held around 7,000 tonnes of silver. Today’s holdings of just under 2,000 tonnes therefore represent less than one-third of those previous levels. The recent inventory recovery should be viewed as a rebound from exceptionally tight conditions rather than evidence that the structural supply deficit has disappeared.
Perhaps the most remarkable feature of the latest correction is the continued resilience of physical demand. Chinese silver continues trading at an 11.89% premium over LBMA prices, with domestic prices near US$63.84 per ounce compared with approximately US$57.06 per ounce internationally. Such elevated premiums have persisted despite significant inventory rebuilding, suggesting that local buyers remain willing to pay substantially above global benchmark prices to secure physical metal.
Normally, sustained inventory inflows would be expected to reduce regional premiums as supply becomes more readily available. Instead, Chinese premiums have remained stubbornly high, implying that fresh supply is being absorbed almost as quickly as it arrives. This behaviour indicates that domestic demand continues to outpace available supply, even as warehouse balances recover from critically low levels.
The combination of rising inventories alongside persistent physical premiums presents an unusual but important signal. Rather than reflecting weak demand, the latest figures suggest that supply chains are finally beginning to replenish inventories without fundamentally altering the underlying balance between buyers and sellers.
Institutional investment demand also remained surprisingly constructive throughout the week. Despite silver prices falling almost 4% to around US$55.50 per ounce, physically backed silver ETFs stored in London increased holdings by approximately 42.6 tonnes, bringing total holdings to roughly 20,626 tonnes. Earlier sessions also recorded additional inflows of around 6.7 tonnes, while one particularly strong day saw investors add almost 199 tonnes, equivalent to 6.4 million ounces, into London-backed ETFs.
The overwhelming majority of those inflows were directed into the iShares Silver Trust (SLV). SLV holdings climbed to approximately 12,625 tonnes, representing a month-to-date increase of around 165 tonnes, or more than 5.3 million ounces. Most of that accumulation occurred in just a single trading session after six consecutive weeks of gradual outflows, suggesting institutional investors viewed the recent price correction as an opportunity rather than a reason to reduce exposure.
The broader London ETF market tells a similar story. Four out of the five largest physically backed silver ETFs have been adding metal during the month, reinforcing the view that long-term investment demand remains healthy despite elevated short-term volatility.
While ETF holdings continue increasing, the amount of freely available silver inside London’s vault system is moving in the opposite direction. Estimated free float has fallen further to approximately 7,456 tonnes, equivalent to around 239.7 million ounces, continuing the gradual decline observed over recent weeks.
This divergence between rising ETF holdings and shrinking free float is significant because it suggests newly acquired silver is increasingly being locked away inside long-term investment vehicles rather than remaining available for immediate trading or physical delivery. As ETFs absorb additional metal, the quantity of readily accessible inventory available to the broader market naturally declines.
Should investment inflows continue at the current pace, London’s physical market could gradually tighten once again even as headline inventory figures remain elevated.
Price action across futures markets was considerably less optimistic. SHFE silver fell 4.92% during one session to approximately 13,540 CNY per kilogram, equivalent to around US$62.23 per ounce on COMEX-adjusted pricing. More importantly, open interest increased by approximately 2.5% during the decline, indicating that fresh short positions were entering the market rather than existing long positions simply being liquidated.
Options activity also reflected growing caution. The Put-Call Volume Ratio (PCVR) climbed to 1.14, showing that put buying outpaced call activity as traders sought additional downside protection. This combination of falling prices alongside rising open interest is typically interpreted as confirmation that bearish speculative positioning is increasing rather than merely reflecting temporary profit-taking.
For now, futures traders appear considerably more cautious than physical investors, highlighting the growing divergence between paper markets and underlying physical demand.
The U.S. market also continues showing signs of improving physical availability. COMEX silver inventories increased by approximately 140 tonnes during the previous week, marking the largest weekly inflow in almost ten months. Total inventories now stand at around 328.8 million ounces, including 95.5 million ounces registered for immediate delivery and approximately 233.3 million ounces classified as eligible inventory.
While these inflows indicate improving supply conditions across North America, they remain relatively modest when viewed alongside the substantial physical accumulation taking place through ETFs. Rather than overwhelming demand, much of the incoming metal appears to be finding willing long-term buyers.
The latest inventory data therefore suggests that physical availability is improving without fundamentally changing the longer-term balance between supply and investment demand.
Silver’s recent weakness has also been evident relative to gold. The Gold-Silver Ratio has climbed toward the 71 level, reaching its highest reading in several months. A rising ratio generally indicates that gold is outperforming silver, either because investors are favouring traditional safe-haven assets or because industrial concerns are weighing more heavily on silver.
Historically, periods when the Gold-Silver Ratio moves toward the upper end of its trading range have often preceded stronger relative performance from silver once macroeconomic conditions begin stabilising. Although the ratio alone should never be viewed as a timing indicator, it does suggest that silver is becoming increasingly inexpensive relative to gold compared with recent history.
For bullion dealers, the current market presents a fascinating combination of improving supply and remarkably resilient demand. Chinese vault inventories have staged an impressive recovery, COMEX stocks continue rebuilding and London ETFs are absorbing substantial quantities of physical silver. Yet China’s premium remains close to 12% above LBMA prices, while London’s free float continues shrinking. Dealers should pay particular attention to whether ETF inflows remain strong over the coming weeks, as continued accumulation could eventually tighten physical availability despite rising warehouse inventories.
For conservative investors, the recent correction appears driven far more by macroeconomic positioning than by any deterioration in silver’s structural fundamentals. Investment demand has strengthened rather than weakened during falling prices, inventories remain well below historical norms despite recent rebuilding, and Chinese buyers continue paying significant premiums for physical metal. These characteristics are generally inconsistent with the beginning of a prolonged bear market and instead support a longer-term accumulation strategy for investors willing to tolerate near-term volatility.
For traders, the market remains caught between improving physical fundamentals and increasingly bearish paper positioning. Fresh short selling, rising put activity and a higher Gold-Silver Ratio could continue weighing on prices over the coming weeks, particularly if the U.S. dollar and real yields remain elevated. In the near term, silver may continue trading within the US$55–60 per ounce range, with US$55 representing an important support area following the recent correction. A decisive recovery above US$60–62 would likely force many of the newly established short positions to cover, potentially accelerating upside momentum toward the US$65–70 region. Looking further ahead, the longer-term outlook remains constructive. If ETF inflows persist, China’s physical premium remains elevated and monetary policy gradually shifts toward easing, silver has the potential to revisit the US$75–85 per ounce range over the next major bullish cycle. The recent inventory recovery has reduced immediate supply stress, but it has done little to diminish the structural demand drivers that continue underpinning silver’s long-term investment case.
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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