Structural silver shortage, COMEX and Shanghai tightness, price spikes, and macro drivers in the 2025–2027 squeeze

The structural silver shortage that has dominated 2025 through 2027 shows no signs of abating as 2028 progresses. Rather, the crisis has deepened into a multifaceted global metal-market disruption characterized by acute physical scarcity, fractured delivery systems, regulatory barriers, and an unprecedented divergence between key trading hubs. This evolving squeeze reflects silver’s increasingly complex dual identity as both a critical industrial input and a strategic safe-haven asset amid mounting geopolitical and macroeconomic uncertainty.

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Intensifying Physical Scarcity and East-West Market Schism

The physical silver deficit remains severe, with inventory metrics and supply flows signaling acute stress across major global exchanges:

• COMEX inventories have dwindled further to approximately 3.3 million ounces, levels not seen since the early 1980s, sustaining a prolonged structural drain. The inventory-to-open-interest ratio remains perilously compressed near 1:6, a key indicator of delivery risk that continues to stoke fears of forced buy-ins and short squeezes.

• Vault withdrawals accelerated in late 2027, with more than 5.5 million ounces removed in the final quarter alone, frequently occurring weeks ahead of scheduled delivery notices. This pattern reflects continuing logistical bottlenecks and a “run on physical silver” mentality among traders and institutional holders fearful of default in delivery.

• The Shanghai Futures Exchange (SHFE) vault inventories contracted an additional 12% during Q4 2027, driven by strong industrial off-take and sovereign stockpiling initiatives. Daily withdrawals have surged to an average of 38 tonnes year-to-date, intensifying physical tightness in China’s domestic market.

• Regulatory measures in China have grown more stringent, with export controls and capital flow restrictions maintained or tightened, effectively isolating the Shanghai silver market. This regulatory “weaponization” has exacerbated a historic price divergence, with the Shanghai silver premium soaring above $250 per ounce relative to COMEX spot prices—an unprecedented east-west bifurcation illustrating the fracturing of global silver pricing.

• The U.S. market saw renewed volatility following the Supreme Court’s recent ruling striking down certain silver import tariffs, injecting fresh uncertainty. Prices experienced sharp swings, briefly surpassing $85 per ounce amid delivery system strains and heightened speculative activity before settling in the $87–89 range.

• Heightened geopolitical tensions continue to tighten supply chains and elevate safe-haven demand. The potential for U.S.-Iran military conflict, combined with persistent security concerns in Mexico’s silver mining regions, compounds physical scarcity and underpins increased risk premiums across the market.

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Price Volatility and Market Structure Stress: Digital Derivatives Surge Amid Fragile Delivery Systems

Price dynamics over late 2027 and early 2028 have been marked by extreme volatility and evolving market behavior, reflecting the underlying structural tension:

• A notable 48-hour price whipsaw in late 2027 saw silver plummet from $91 to $86 before rebounding to $89, underscoring the fragility of delivery infrastructure and the risk of forced liquidations amid thin physical stocks.

• Both CME Group and SHFE raised margin requirements by approximately 35% year-to-date, constraining liquidity and heightening the risk of abrupt forced buy-ins that could exacerbate price spikes and volatility.

• Despite ongoing physical scarcity, silver-backed ETFs continue to draw significant investor flows. The Global X Silver Miners ETF (SIL) and Sprott Silver Miners & Physical Silver ETF (SLVR) now manage over $40 billion in combined assets, reflecting persistent demand for diversified exposure amid delivery risks.

• The Sprott Physical Gold and Silver Trust (CEF) remains a critical refuge for investors seeking direct physical bullion exposure as futures markets become increasingly fragile, with episodic delivery failures raising counterparty risk concerns.

• Digital silver derivatives trading has surged dramatically, with platforms such as Binance now reporting monthly volumes exceeding $100 billion. This explosive growth in digital and synthetic silver exposure creates a speculative ecosystem increasingly decoupled from physical fundamentals, complicating price discovery and amplifying systemic risks.

• Market concentration remains a key concern, with the top 10 futures short holders controlling nearly 60% of open interest, increasing vulnerability to sudden short squeezes or delivery failures that could trigger cascading market dislocations.

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Supply-Side Developments: Streaming Lockups, Potential Restarts, and Mexican Junior Sector Challenges

Supply constraints persist, but emerging developments offer cautious optimism for incremental relief amid ongoing risks:

• Streaming and royalty agreements continue to lock up future silver production, restricting near-term supply availability. Since late 2026, institutional investors have executed over $6 billion in streaming deals, highlighting a strategic preference for predictable cash flows insulated from spot price volatility.

• Silver Storm Mining remains a critical near-term candidate for easing supply bottlenecks, having advanced permitting and infrastructure readiness for a potential restart between 2026 and 2027. Market analysts emphasize that sustained prices above $85 per ounce could incentivize ramp-up, providing meaningful local relief.

• Mexico’s junior silver mining sector presents both opportunity and risk. Elevated silver prices have supported valuations and project financing, yet ongoing cartel-related violence and security concerns impose significant risk premiums, complicating investment decisions and operational continuity.

• Established producers such as Hecla Mining, Pan American Silver, and Fresnillo report realized silver prices 28–34% above COMEX spot, benefiting from strong contract pricing and elevated premiums despite geopolitical and operational headwinds.

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Macro Drivers and Policy Shifts: Rising Real Yields, Central Bank Activity, and Geopolitical Risk Premiums

The broader macroeconomic and geopolitical environment continues to shape silver’s trajectory:

• The U.S. 10-year Treasury yield recently breached the 4% threshold, reflecting a rising real yield environment that historically pressures precious metals prices. However, analysts note that any stabilization or decline in real yields could renew silver’s safe-haven appeal, especially amid ongoing inflation concerns.

• Central banks have intensified precious metals reserve rebalancing amid global monetary shifts. Notably, the SPDR Gold Trust increased holdings by 3.43 tons in early 2028, pushing gold prices past $5,100 per ounce. This gold strength indirectly bolsters silver’s appeal as investors diversify their precious metals exposure amid weakening U.S. dollar dynamics.

• Liquidity strains in repo markets and volatility in real yields remain critical variables for precious metals pricing. Market watchers caution that tightening liquidity or contagion effects could trigger abrupt price swings, further complicating delivery system dynamics and futures market stability.

• Geopolitical uncertainties persist as potent risk drivers. Potential military actions in the Middle East and ongoing cartel violence in Mexico continue to elevate risk premiums, sustaining robust safe-haven demand for silver.

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Implications for Investors and Market Participants

Navigating the ongoing silver squeeze requires a sophisticated, dynamic approach that integrates physical market realities, market structure nuances, and macroeconomic shifts:

• Monitor COMEX and SHFE vault inventories closely, as changes here remain among the most reliable indicators of physical market health and delivery risk.

• Track the Shanghai silver premium relative to COMEX spot prices, a vital barometer of market segmentation and potential arbitrage windows amid regulatory constraints.

• Assess margin requirement changes and futures short concentration to anticipate potential forced liquidations or short squeeze scenarios.

• Remain vigilant on geopolitical developments, particularly U.S.-Iran tensions and security challenges in Mexican mining regions, as these can swiftly alter supply dynamics and risk sentiment.

• Maintain diversified exposure across physical bullion holdings, select mining equities, streaming agreements, and well-managed ETFs/trusts, coupled with disciplined risk management to weather episodic volatility.

• Watch for supply-side catalysts such as Silver Storm Mining’s possible restart and Mexican junior sector developments, which could provide incremental relief if geopolitical and regulatory conditions permit.

• Incorporate scenario analysis focused on real yields and central bank behaviors to anticipate shifts in safe-haven demand and pricing dynamics as 2028 unfolds.

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Current State and Outlook

As 2028 advances, the silver market remains deeply bifurcated and structurally constrained. The relentless COMEX vault depletion combined with a historic Shanghai premium above $250 per ounce underscores a fractured global marketplace burdened by delivery infrastructure overload and regulatory segmentation.

Price volatility and episodic spikes continue to highlight market fragility, while the explosive growth of digital silver derivatives and concentrated futures shorts amplify systemic and counterparty risks. Although supply-side developments offer some hope, significant bottlenecks persist amid geopolitical and operational challenges.

Macro drivers—rising real yields, central bank reserve shifts, liquidity conditions, and heightened geopolitical risk—will critically influence silver’s trajectory through the year. The silver squeeze unfolding over 2025–2027 is far more than a momentary disruption; it is a structural recalibration of silver’s market role, intertwining industrial demand constraints with strategic asset repositioning. This dynamic is poised to reverberate throughout precious metals markets well into the next decade.

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This update integrates the latest early-2028 data and market developments, including the recent SPDR Gold Trust holdings increase, to provide a comprehensive view of the evolving structural silver shortage and its broader market implications.