Quick overview

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Global silver prices have stabilized after an incredible period of volatility, but China’s supply is constrained as investment and industrial demand deplete stockpiles.

A backlog of orders is making it difficult for domestic producers and traders to fulfill, which is driving up short-term prices and severely backwardating the market.

The market’s overwhelming preference for timely delivery of the metal is evident in the front-month contract on the Shanghai Futures Exchange, which has reached a record premium.

The depletion of deliverable material and an inventory crisis are the main causes of this significant backwardation, according to Zhang Ting, senior analyst at Sichuan Tianfu Bank Co. Institutions are still motivated to keep controlling the market to make money.

Short sellers on the Shanghai Gold Exchange who wagered that silver prices would decline have been paying deferral fees to long-holders to avoid having to make deliveries, underscoring the lack of metal to close positions.

The 61 percent gain in the first few weeks of the year has been largely erased by the silver market’s historic selloff since the end of January.

The independence of the Federal Reserve as the white metal momentarily surpassed gold as a reserve asset of anxieties over the dollar and escalating geopolitical conflicts, which were fueled by a surge of speculative buying in China and other countries. Extreme movements, like a global supply squeeze in the fall, are nothing new to the relatively illiquid silver market.

Chinese inventories were already exhausted when demand for investments surged. Stockpiles at SHFE and SGE-affiliated warehouses have since decreased to levels not seen in over ten years.