Silver inventory shortage triggers global market alarm, extreme market risk intensifies

The silver market has recently been rife with tension. Since late November, spot silver prices have risen for consecutive days, breaking through the $53.6 per ounce mark and hitting new market expectations. The driving force behind this rally is not merely investor sentiment but a hidden inventory crisis—Silver warehouse stocks at the Shanghai Futures Exchange have fallen to their lowest levels since 2015, while the Shanghai Gold Exchange’s silver reserves have hit a nine-year low.

This inverse interaction between inventory and price is creating significant structural pressure within the global silver trading system. Once considered a “stable supply” precious metal market, it now faces the real threat of supply chain disruptions.

Multiple Factors Fuel the Shift, Transforming Silver from a Traditional Precious Metal to a Key Industrial Raw Material

The causes of the silver inventory crisis are complex and multifaceted. First, international arbitrage trading has intensified the imbalance in geographic distribution of stocks. Facing potential tariff policies, traders have massively moved silver from London to the New York COMEX warehouses to pre-position. While this “buy on dips” strategy is rational, it has directly drained London Metal Exchange inventories, forcing the exchange to adjust delivery rules, implement tiered premium controls, and even temporarily suspend certain trading varieties to prevent market manipulation.

Second, the industrial demand structure is undergoing fundamental change. Technological breakthroughs in photovoltaic (PV) technology—particularly the replacement of traditional P-type cells with TOPCon and HJT cells—have significantly increased silver usage per unit. Meanwhile, the widespread adoption of silicon carbide modules in the electric vehicle industry has led to explosive demand for high-conductivity silver pastes. Silver is no longer just a traditional “precious investment metal”; it has evolved into an indispensable key industrial raw material.

Third, the chain reaction from China’s tax reform is impacting the market. The removal of VAT rebates on off-exchange gold sales has prompted many traders in Shenzhen’s Shuibei market to seek alternative business in silver. The new pricing mechanism has increased difficulty, making silver a more attractive option in the eyes of the market. Although this policy change appears localized, it further exacerbates the supply tightness in the spot market.

Monetary policy shifts have also strengthened silver’s investment appeal. Signals of rate cuts and the halt of balance sheet reduction by the Federal Reserve weaken the dollar’s relative strength, boosting profit expectations for dollar-denominated commodities. Meanwhile, the global de-dollarization trend and reconsideration of the gold standard are driving China and the US to include silver and other precious metals in their strategic reserves and export control priorities.

Regulatory Warnings and Market Imbalances, Repeating Extreme Historical Trends

Silver prices have surged over 80% so far this year. During this rally, silver’s gains have continuously outpaced gold, an abnormal performance that signals a warning—non-US markets are facing severe silver stock challenges. The Shanghai Futures Exchange has felt the pressure, raising margin requirements and price limit ranges for silver futures since October 21, in an attempt to curb excessive speculation and market disruption.

The situation in London is even more tense. The spot premium structure is now obvious, with near-month contracts consistently trading above longer-dated contracts, a typical short-term supply shortage signal. Lending costs remain high, reflecting increasing difficulty for traders to access physical silver. More alarmingly, China’s silver exports surged to over 660 tons in October, setting a record high. This large-scale outflow further depletes domestic stocks, weakening the market’s buffer capacity.

Industry experts expect that the shortage may take about two more months to gradually ease. However, if inventories are not replenished in time, the market could reenact the scene of March 2020—when COMEX silver futures experienced extreme volatility, forcing exchange intervention. London silver stocks have shrunk by approximately 75% from their 2019 peak, with only about 200 million ounces freely circulating. This extreme scarcity could trigger sharp price swings and increase industry chain costs.

Exercise Caution and Build Multi-Dimensional Risk Defense Strategies

Until global silver inventories are rebalanced, market participants should adopt proactive risk management measures. Experts recommend approaching from multiple angles: improving delivery mechanisms to enhance market efficiency, strengthening international cooperation to ensure supply chain stability, developing diversified derivative products to help investors manage risk exposure, and encouraging industry enterprises to establish strategic reserves to cope with sudden supply shocks.

For investors, the immediate priority is to closely monitor inventory changes, delivery rule adjustments, and major economic policies. These variables will jointly determine the future trajectory of the silver market. In a context where extreme market conditions can emerge at any time, controlling risk exposure and cautiously responding to potential liquidity shocks have become fundamental principles for market participation.