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Record inventory builds in COMEX silver, elevated silver prices on the Shanghai Gold Exchange, and a flood of gold into Shanghai warehouses driven by arbitrage opportunities. These trends underscore a potential bullish outlook for precious metals investors that largely go unnoticed as major news outlets simply overlook the importance of what these shifts mean. We have long said the financial system is going through a massive change with precious metals at the core, this newsletter will highlight further steps that are happening in that process.
COMEX Silver Inventories Reach Record Highs
Silver inventories in COMEX warehouses have surged to an all-time high of approximately 506 million ounces, marking a significant milestone in the market. This buildup reflects a rush to store physical silver rather than cash, fueled by evolving trader behaviors.
The prevailing theory among market analysts suggests that holders of silver futures contracts are increasingly opting for physical delivery rather than cash settlements. In traditional futures trading, contracts can be settled in cash equivalents, but a shift toward demanding the actual metal indicates growing confidence in silver’s value appreciation. This demand for physical payouts is seen as a response to perceived undervaluation that more people are taking note of as the price continues to rise.
Why the preference for metal over cash? Experts suggest that this behavior signals an anticipation of a major upward price movement in silver. If contract holders believe silver is poised for a breakout—perhaps driven by industrial demand in sectors like electronics, solar energy, and electric vehicles—they may prefer to hold the physical asset to capitalize on future gains. This inventory spike could tighten supply in the West, potentially exacerbating price pressures if delivery demands continue to rise.
Historically, such inventory builds have preceded rallies, as they reduce available floating (or for sale) supply. Investors should monitor COMEX delivery notices closely, as sustained physical demand could propel silver prices higher in the coming months.
Shanghai Silver Prices Climb Above $40 per Ounce
In a parallel development, silver prices on the Shanghai Gold Exchange (SGE) have once again surpassed $40 USD per ounce, highlighting resilient Eastern demand amid fluctuating global markets.
This price level is noteworthy, as it often coincides with periods of Western price weakness. A recurring pattern in the silver market is the eastward migration of the metal: when prices dip in markets like London or New York—due to factors such as rising interest rates or speculative selling—Chinese buyers step in aggressively. China’s role as a major industrial consumer and investor in silver amplifies this flow, with imports surging to fill the gap. This ultimately leads to Western prices needing to catch up to slow the bleed of physical silver overseas.
The recent climb above $40 on the SGE suggests that arbitrageurs and investors are capitalizing on these disparities. Lower Western spot prices enable purchases that are then redirected to Shanghai, where premiums reflect stronger local demand. This dynamic not only supports higher prices in China but also contributes to global supply chain shifts, potentially stabilizing or lifting international benchmark prices over time.
Record Gold Floods into Shanghai Warehouses on Arbitrage Play
Shifting focus to gold, warehouses linked to the Shanghai Futures Exchange (SHFE) have seen an unprecedented influx, with over 36 tons of gold bars registered for delivery against futures contracts. This volume has nearly doubled in the past month, pushing inventories to an all-time high and signaling vigorous trading activity in China.
As detailed in a recent report from Mining.com, this surge is largely attributed to arbitrage opportunities created by a premium in futures prices over the physical spot market. Traders and banks are buying cheaper gold on the spot market, delivering it to SHFE warehouses, and using it to offset futures sales for profit. John Reade, senior market strategist at the World Gold Council, noted, “This shows how strong gold trading demand is in China right now. So many people were piling into futures that prices shot up above physical gold. That created an opportunity for others to step in and deliver gold into the system.”
Broader market context reveals a mixed picture: while gold jewelry purchases in mainland China dropped 45% quarter-over-quarter due to near-record prices dampening retail appetite, investment in bars and coins remains resilient as consumers are looking to get more gold for the cash.
This arbitrage-driven buildup echoes earlier dislocations, such as the brief gold influx into New York COMEX warehouses amid U.S. tariff concerns, which halted when precious metals were exempted. Overall, these trends affirm gold’s safe-haven appeal amid economic and geopolitical uncertainties.
Outlook
The convergence of these developments—record COMEX silver stocks signaling physical demand, elevated Shanghai silver prices indicating eastward flows, and SHFE gold inventory surges via arbitrage—paints a bullish picture for precious metals. While Western markets grapple with volatility, China’s influence as a demand powerhouse continues to shape global pricing due to putting upward pressure on precious metals.
