Global supply is extremely tight, and silver is staging an epic short squeeze

A storm triggered by a shortage of physical supply is sweeping through the global silver market. As the inventory at the Shanghai Futures Exchange (SHFE) plummeted to a nearly ten-year low, silver prices have followed gold's upward trend, soaring to historic highs.

On Monday, silver prices briefly reached a historic high of $58.84 per ounce, continuing last Friday's nearly 6% increase, and have risen for six consecutive trading days. Since the beginning of the year, the value of silver has nearly doubled, with its increase far surpassing gold's robust performance of about 60%.

Behind this sharp rise is speculative betting by traders on the ongoing tightness in global supply. As the Bitcoin and cryptocurrency markets overall decline, a short squeeze in physical silver is unfolding. Following a historic squeeze in the London market months ago, the pressure has now shifted to other centers.

Market participants are closely watching this "perfect storm" orchestrated by China's inventory crisis, strong industrial demand, speculative fervor, and potential trade policy risks. Against the backdrop of major global inventory centers struggling to provide effective buffers, the vulnerability of the silver market is being amplified, and any new shocks could trigger more severe price fluctuations.

Shanghai Inventory Crisis, Global Shortage "Domino Effect" Falls

Wind data shows that during the week of November 24, silver inventory at the Shanghai Gold Exchange fell by 58.83 tons to 715.875 tons, marking a new low since July 3, 2016. On November 25, although the inventory barely increased by 21.3 tons, it still remains at a near ten-year low.

Zijie Wu, an analyst at Jinrui Futures, pointed out, "The tightness stems from increased exports to London." According to Jiemian News, due to concerns over tariffs leading to cross-border shipping costs, commodities such as gold, silver, and copper have experienced a "cross-border migration" arbitrage phenomenon between major warehouses in New York and London ahead of the tax increase. ING's Warren Patterson and Ewa Manthey stated that the trigger for these shipments was a recent supply tightness that once pushed silver prices to historic highs. Data shows that China's silver exports rose to over 660 tons in October, setting a new historical record

Analysis indicates that Shanghai silver futures prices have fallen into a deep "spot premium" structure, meaning that recent contract prices are higher than forward contract prices, which suggests severe short-term supply pressure in the market. Zijie Wu stated, "Given the low inventory levels and the so-called inelastic (or sticky) supply, market concerns remain high."

Multiple Demand Factors, Strong Fundamental Support

In addition to supply-side shocks, strong demand from multiple levels also provides solid fundamental support for rising silver prices.

First is industrial demand. Zijie Wu added, "The fourth quarter is usually the peak season for solar installations," and photovoltaic components are one of the main areas of silver consumption in China.

On November 1, the Ministry of Finance and the State Administration of Taxation issued an announcement on tax policies related to gold. Member units or clients trading standard gold through the Shanghai Gold Exchange and the Shanghai Futures Exchange will be exempt from value-added tax when selling standard gold. However, taxpayers who do not sell standard gold through the exchange must pay value-added tax according to current regulations.

Liu Shunmin, risk manager at Shenzhen Guoxing Precious Metals Co., Ltd., stated:

"After the new regulations, many merchants are uncertain about how to price their products, so some are shifting their focus to silver."

At the same time, speculative demand is flooding in with unprecedented momentum. Daniel Ghali, a commodity strategist at TD Securities, believes, "Most of the physical demand in the London market today is purely speculative." The silver ETF, which measures retail demand sentiment, recorded net inflows again in November. In the options market, the volatility premium for silver call options has risen to its highest point since 2022, indicating that the cost for investors betting on price increases has surged.

Macroeconomic and Policy Risks Intensify Market Dynamics

Macroeconomic expectations and potential policy changes add more uncertainty to the long-short dynamics in the silver market. Market expectations for a possible interest rate cut by the Federal Reserve this month are heating up, providing precious metals like gold and silver with an appeal against the depreciation of fiat currencies.

What makes the market even more tense is the policy risk from the United States. The market is beginning to worry that the Trump administration may impose tariffs on silver. Daniel Ghali warned, "If tariffs are imposed on silver, then the silver that has already arrived in the U.S. will be locked in," and if the Shanghai market is still recovering from supporting actions in London at that time, "the impact will be huge." This fear of a sudden U.S. premium has led some traders to be reluctant to ship metals out of the U.S., leaving little hope for relief as the global market tightens further.

David Wilson, head of commodity strategy at BNP Paribas, stated, "Last week's trend was driven by speculation," investors need to pay attention to the gold-silver ratio, which has dropped to around 70, as it relates to the valuation level of silver relative to gold. **

Against the backdrop of silver prices hitting new highs, investor sentiment is high, and stocks of related mining companies are also in high demand. On Monday, silver mining stocks generally rose. Coeur Mining Inc., listed in the United States, rose by as much as 3.5%, while Pan American Silver Corp. increased by 2.5%. Fresnillo Plc, listed in London, soared over 8%. In Australia, Sun Silver Ltd. and Silver Mines Ltd. surged by 21% and nearly 13%, respectively.