TD Securities’ Daniel Ghali reports that persistent Chinese demand for silver in Shanghai has kept the Shanghai arbitrage window open, which has supported international silver buying. This demand is linked to profitable import arbitrage opportunities, especially since the days preceding the war in Iran [1]. Ghali notes that recent price dislocations in the Shanghai Futures Exchange (SHFE) have attracted inventories back into its vaults, alleviating concerns about domestic scarcity as off-exchange inventories are moved into SHFE warehouses [1].
Despite strong physical flows and notable draws from CME warehouses, visible silver stocks remain ample relative to dealer shorts. Specifically, CME warehouses still hold 345 million ounces of silver, which means dealers could theoretically cover their entire 125 million ounce short futures positions with physical metal located in the right jurisdiction. Even after such coverage, the CME would still have a substantial 220 million ounces remaining in its warehouses [1].
Ghali concludes that the silver market narrative is shifting toward rising inventory coverage, driven by shrinking deficits and a growing global free float. This suggests that concerns about scarcity are being alleviated as inventory coverage increases, and the market is moving toward a more balanced supply-demand dynamic [1].
CONCLUSION
TD Securities sees the silver market transitioning toward greater inventory coverage, supported by persistent Chinese demand and ample visible stocks. While physical flows and warehouse draws are notable, the overall supply remains robust, reducing scarcity concerns and potentially stabilizing market dynamics.