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The silver market is undergoing a subtle but powerful rebalancing, and nowhere is this more visible than in the synchronized tension now playing out across both COMEX futures markets and Shanghai’s dwindling vault inventories.
As Hugo Pascal, Chief Investment Officer at InProved, points out, “We are now in a phase where the physical and paper markets are no longer pulling in opposite directions. They are both signaling scarcity — and that has profound implications for how silver is priced and invested going forward.”
Over the past week, Shanghai’s silver vaults have continued their historic drain. Vault holdings have fallen another 24 tons week-to-date, bringing total inventories down to just 912 tons, or approximately 29.4 million ounces. This marks yet another eight-month low for Shanghai and pushes year-to-date outflows beyond 504 tons — a staggering figure when viewed against the backdrop of global mine supply and expected industrial demand.
Meanwhile, silver inventories at the Shanghai Futures Exchange (SHFE) are following a similar path. Vaults there have dropped another 13 tons this week, leaving only 924 tons, or 29.7 million ounces, available. These twin declines suggest that the drawdown in physical silver isn’t isolated to spot settlement markets — it is occurring across futures settlement systems as well.
On the futures side, COMEX silver (July 2025) is revealing clear signs of tightening bullish positioning. Silver is trading within its key 68.2% retracement band between $33.14 and $34.50, levels that historically have marked major pivot points. The call wall is now firmly set at $35, indicating where heavy upside options interest is accumulating, while the 25-delta risk reversal skew has widened dramatically to 4, one of the strongest pro-call skews observed this year.
“Options traders are positioning aggressively for upside,” Pascal notes. “A 4-point skew is not just optimism — it’s real conviction that supply-side constraints and monetary tailwinds are going to collide at the same time.”
Spot silver itself continues to reflect this tightening tension, trading as high as $35.35/oz, approximately 5.75% above LBMA benchmarks. Earlier this week, silver prices also hit $34.80/oz, a 6.5% premium over London, reinforcing that this is a global phenomenon, not just an Asian-centric squeeze.
For bullion dealers, this evolving backdrop demands a strategic shift. In a world where physical inventories are draining in China and premiums are rising globally, traditional spot-based pricing models will increasingly fail to capture real-world liquidity risks. Dealers must consider building more dynamic pricing frameworks that incorporate premiums from Shanghai, COMEX backwardations, and vault drawdowns into daily spreads.
Pascal advises, “Bullion dealers who stick to static pricing risk being caught wrong-footed. Spot is no longer spot — it’s a theoretical number detached from true, deliverable supply in critical regions.”
Dealers should also begin adjusting reserve management practices. Instead of running lean inventory models based on “just-in-time” assumptions, a pivot toward higher on-hand inventory buffers may be necessary to weather future liquidity crunches without suffering margin erosion. In particular, securing access to diversified warehousing options — both domestic and offshore — could provide competitive advantage as vault stresses mount.
For bullion-focused investors and diversified asset allocators, the signals flashing in today’s silver market suggest that precious metals must be treated not only as portfolio hedges but as dynamic, high-beta exposures in a tightening real-asset cycle.
Pascal highlights that silver’s historical volatility and monetary sensitivity make it a potent lever in today’s environment, but one that requires active management. “Investors need to think of silver less as a passive inflation hedge and more as a tactical allocation — one that can outperform in supply-constrained, rate-volatile conditions but demands active attention,” he says.
Diversifiers should also consider increasing their exposure to physical allocations over synthetic forms like unallocated pool accounts or derivatives, particularly if the trend of physical vault depletion accelerates. Holding actual titled metal — ideally across multiple jurisdictions — will increasingly separate tactical winners from paper-positioned losers as delivery pressures grow.
Additionally, blending silver with complementary assets like platinum, which is also showing strength (trading at $1,015.7/oz, +4.2% over LBMA), could enhance portfolio resilience as the precious metals complex tightens in unison.
As Shanghai vaults drain and COMEX call structures build ever higher, it is increasingly clear that silver is entering a phase where scarcity is no longer theoretical — it is becoming embedded into pricing, sentiment, and trading behavior.
The East is moving first, with China’s relentless vault withdrawals and aggressive call buying setting the tone. The West is following, with COMEX skewing heavily bullish and spot prices breaking away from traditional London benchmarks.
For dealers, the message is to get dynamic — or risk getting squeezed. For investors, the message is to move into real assets before premiums and volatility price them out of optimal entry windows.
As Hugo Pascal sums it up: “The smart money isn’t asking where silver prices are today. They’re asking how much metal will be available when the real rush begins. And right now, the answer is: less than you think”.
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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