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Informist, Monday, Dec. 29, 2025

MUMBAI – The recent sharp rise in prices of silver is not a simple bull rally, as the market for the white metal has undergone a structural transformation, Motilal Oswal Wealth Management said in a report Friday. The rally "reflects a fracture between paper pricing and physical scarcity, driven in large part by inventory depletion, policy shifts, tightening global supply and a demand push from safe-haven as well as industries," it said.

The silver rally underscores the global nature of the supply squeeze and persistent demand pressures, it said, and added that this is not random volatility. It is the culmination of years of supply deficits and intensifying physical demand that has exposed systemic weaknesses in the way silver is priced and traded, the report said.

A major contributor to this transformation is China's evolving role in the global silver supply chain. China being one of the largest refiners and consumers of silver, developments in its market affects global markets in a major way, the report said. Throughout 2025, physical inventories in Chinese vaults have steadily been drawn down to decade-low levels. "These outflows have been driven by a mix of industrial demand, investment accumulation and possible hoarding, leaving visible inventories at their most constrained in many years," the report said.

Also, recent policy shifts, including proposed export licensing requirements beginning Thursday, signal Beijing's intent to retain more silver domestically or at least regulate the pace at which it leaves Chinese borders.

"This restricts the flow of physical metal into global markets just when other inventory hubs are also under stress, effectively tightening available supply on a global basis," it said.

The divide between paper silver and physical silver is further highlighted by developments on the COMEX and within the banking system that dominates much of the paper market. In late 2025, COMEX faced "vault drain crisis," when more than 60% of its registered silver inventory was claimed for delivery within just four trading days, revealing the low level of deliverable metal that remained on hand relative to outstanding futures positions, the report said. "This dramatic depletion underscores a deeper stress in the system: open interest on COMEX futures continues to vastly exceed physical availability."

Some financial institutions too played a vital role. According to recent data, JPMorgan controls around 196 million ounces of silver within the COMEX system, representing nearly 43% of the exchange's total inventory, including both proprietary and client holdings. The bank also serves as custodian for large quantities of silver in exchange-traded products, with over 500 million ounces held in silver stockpiles.

"A significant portion of COMEX's supposed inventory is effectively in a bottlenecked state, awaiting conversion to deliverable status if physical settlement demands spike," the report noted.  End

Reported by Abhijit Doshi

Edited by Avishek Dutta

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