Silver inventory shortage triggers a surge, is an extreme market comeback on the horizon?

The silver market has continued its upward momentum for four consecutive trading days, with spot prices breaking through $53.6 per ounce. Behind this rally lies a deep crisis in the global supply chain.

Inventory Crisis on All Fronts, Multiple Factors Trigger the Explosion

The real issue is not just rising prices, but the physical disappearance of silver. Inventory in the Shanghai Futures Exchange silver warehouses has fallen to its lowest level since 2015, and the Shanghai Gold Exchange’s stocks have also hit a nine-year low. This is not a coincidence but the result of multiple forces acting simultaneously worldwide.

Cross-border arbitrage has become the main driver of rapid inventory outflows. Facing potential tariff threats, traders rushed to transfer large quantities of silver from London to the NYMEX warehouses in New York before policies were implemented. The arbitrage opportunity created by the price difference between the two locations triggered this “Great Silver Migration,” directly causing a sharp reduction in inventories at the London Metal Exchange, with increasing liquidation risks. To stabilize the market, the London Exchange has planned to adjust the lending rules for near-month contracts and implement tiered premium controls for large positions.

Structural changes in the Chinese market have also intensified supply tightness. After tax reforms eliminated some VAT refunds on off-market gold sales, traders in the Shenzhen Shuibei market shifted toward silver to seek alternatives. This shift further boosted trading activity in the spot market and accelerated local inventory depletion. Data shows that China’s silver exports in October surged to over 660 tons, setting a record high. This large-scale outflow has directly impacted global inventory balance.

Industry Upgrades Drive Long-Term Demand, Silver Shifts from Supporting Role to Main Actor

Silver is no longer just a precious metal investment; it is becoming an indispensable industrial raw material. The pace of technological iteration in the photovoltaic industry has exceeded expectations. The replacement of traditional P-type cells with N-type (TOPCon and HJT) has become inevitable, significantly increasing the amount of silver used per photovoltaic module. The electric vehicle industry is also driving another upgrade—widespread adoption of silicon carbide modules has led to explosive growth in high-conductivity silver paste demand.

The US Geological Survey has listed silver as a critical mineral, reflecting a renewed global recognition of its strategic value. If the US imposes tariffs on silver, stocks already shipped to the US could be locked in, potentially causing structural disruptions in the global supply chain. Meanwhile, the trend of de-dollarization and potential return to the gold standard are prompting China and the US to include silver in strategic reserves and export controls, further restricting the amount of silver available for market circulation.

Monetary Policy Shift Provides Additional Support for Silver

The Federal Reserve’s signals of interest rate cuts and plans to halt balance sheet reduction have substantially weakened the US dollar, enhancing the safe-haven appeal of precious metals. Silver has gained over 80% this year, with London spot prices briefly surpassing $54 per ounce in October. Recently, with changing policy expectations, prices have risen again, outpacing gold, indicating a market re-pricing of silver’s scarcity.

From a technical perspective, the Shanghai Futures Exchange shows a clear spot premium structure, with near-month contracts consistently trading above longer-term contracts, directly reflecting severe short-term supply shortages. Lending costs in the London market remain high, further confirming the increased difficulty in obtaining physical silver.

Extreme Volatility Risks Are Approaching; How Should Investors Respond?

Multiple warning signals have emerged. Since October 21, the Shanghai Futures Exchange has raised margin requirements and widened daily price limits for silver futures as proactive regulatory measures. Industry experts warn that if inventories are not replenished in time, a repeat of the March 2020 extreme market event could occur—when COMEX silver futures experienced intense volatility and even triggered intervention by the exchange.

Currently, London silver inventories have shrunk about 75% from their 2019 peak, with only 200 million ounces freely tradable. Industry insiders expect the shortage may take about two more months to gradually ease. During this window, market volatility risks are highly likely to be triggered.

In the face of rising market risks, investors should strictly control risk exposure and adopt multi-layered protective strategies. It is recommended to closely monitor inventory changes, delivery rule adjustments, and monetary policy directions of major economies, as these factors will jointly determine the future trajectory of the silver market. Participants should carefully assess potential liquidity shocks, stay attentive to international coordination trends, and explore opportunities in diversified derivative products. Until global silver inventories are rebalanced, cautious handling remains the best approach.