Chinese silver stocks have hit their lowest level in ten years due to record exports and pressures in the physical market. Warehouses in China have seen a drop of 9,361 kilograms, bringing the total silver inventory down to 531,211 kilograms—its lowest since 2015. In October, silver exports surged to over 660 tonnes. This was an effort to ease a supply crunch that recently pushed prices to record highs. As a result, the Shanghai market is in backwardation, where current silver prices are higher than future ones. This indicates an immediate scarcity of silver in China. The backwardation in Shanghai is a strong signal for traders. We recommend considering long positions in near-term silver futures, as this price pattern shows that immediate demand is outpacing supply. This situation stems from Chinese inventories being drained to their lowest point since 2015. To take advantage of the tight supply, buying call options on silver futures or related ETFs can be beneficial. This approach allows for potential price spikes while limiting risk. Implied volatility in silver options has already risen above 35%, indicating that the market expects a significant move. Selling out-of-the-money puts could also be a smart strategy to earn high premiums, as the inventory shortage could keep prices stable. This isn’t just a local issue; it’s supported by strong fundamentals. Demand for industrial silver is strong. Global solar panel installations are expected to exceed 500 gigawatts in 2025, putting pressure on physical stockpiles. The ongoing demand from the green energy movement suggests that the current tight conditions are likely to persist. Looking back, we saw a similar situation when Chinese inventories were low in late 2015, which led to a significant price increase of over 30% by summer 2016. This historical pattern indicates that the current market conditions could lead to another strong rally in the coming months. The record silver exports from China to London demonstrate that this is a global issue, prompting COMEX front-month futures to surpass $35.50 per ounce. We are also exploring calendar spread strategies to profit from the backwardation. This involves buying the nearer-term contract and selling a later one, which will be profitable if the supply crunch worsens.

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