Silver Becomes Scarcer, Market Tensions Grow
The global silver market faces new risks after China's silver stocks fell to their lowest level in a decade. Inventories at warehouses connected to the Shanghai Futures Exchange hit their lowest level since 2015, while volumes at the Shanghai Gold Exchange also fell to their lowest in more than nine years. This comes after Chinese silver exports surged to more than 660 tons in October, a historic high, to help ease a supply glut in London that had pushed prices to record highs.
So far this year, silver prices have risen nearly 80% on the back of the gold rally and speculation that the Trump administration could impose special tariffs on silver. The surge in buying interest attracted large amounts of silver to the US, tightening the London market at a time when Indian demand was also surging, triggering a major "squeeze." Now, China's dwindling stocks are making it difficult for the country to act as a supply buffer in the near term. In Shanghai, short-term silver prices are more expensive than long-term contracts (backwardation), indicating strong supply pressure.
On the demand side, the demand for silver in industry, particularly solar (photovoltaic) components, is also increasing. The fourth quarter is typically the peak season for solar panel installations in China. At the same time, changes in tax regulations that removed the VAT incentive for some over-the-counter gold sales have prompted some traders to shift to silver. This is evident in the Shuibei market in Shenzhen, where many traders who previously focused on off-the-counter gold are now expanding their silver trading.
Outside of China, global silver market liquidity remains a concern. Silver borrowing costs in London remain high despite physical inflows into the UK. Market participants are also monitoring potential silver tariffs in the US, after the metal was added to the US Geological Survey's list of critical minerals. Meanwhile, silver holdings in ETFs have held steady without major selling, indicating strong speculative demand. For now, hopes are focused on China's "invisible" off-the-counter silver stocks, although the true size of these stocks remains a question mark for the market. (asd)
Source: Treading Economics
