Is A Major Physical Silver Supply Squeeze Developing?

There is a strong prospect that silver’s price could rise much further in the coming months

(June 6, 2024 - Patrick A. Heller)

At the COMEX market close Wednesday, June 5, the spot price of silver was up almost 25 percent from where it settled at the end of last year. In recent weeks, the prices have been even higher than that.

Normally, when there has been such a relatively large move in a commodity’s price, you will tend to see a retrenchment, often giving up half of the recent gains. Then, prices can stagnate at those levels. That has not happened yet this time around.

In fact, there is a strong prospect that silver’s price could rise much further in the coming months.

According to the Silver Institute’s research, there was a combined shortfall from 2021 to 2023 of more than 663 million ounces of silver supply to meet demand–before factoring in inventory movements into and out of silver exchange-traded funds. This shortfall amounts to almost 80 percent of annual global silver mining output. Another shortfall of 215 million ounces is forecasted for 2024. Just on this basis, there is pressure for higher silver prices.

In recent months, Reliance Industries in India has had so much difficulty acquiring physical silver to use in manufacturing solar panels and other photovoltaic products that the company ended up purchasing COMEX silver futures contracts. Upon maturity of those contracts, it asked for physical delivery of at least 25 million ounces of silver.

The private sector's demand for physical gold in China has been so strong this year that demand for investment purposes in that nation rose 26.9 percent in the first quarter of 2024 compared to the first quarter of 2023. Gold imports into China have not been enough to cover demand, so Chinese buyers are purchasing gold contracts on the Shanghai Futures Exchange. Combined, the volume of gold trading in the Shanghai Gold Exchange and the Shanghai Futures Exchange now exceeds the volume of the COMEX.

To try to mitigate the shortage of physical gold in that country, the government ordered the media there several weeks ago to urge the public to purchase physical silver instead of gold. Over the past two weeks, the price of physical silver in China has risen as high as $4 above the global spot price. Between strong physical demand in India and China, there appears to be a good prospect of much higher silver prices soon.