Why Is Silver Trading At A Massive Discount To Spot Prices Globally?
Understanding the backwardation, global arbitrage stress, and India’s widening futures premium
Silver markets are witnessing unusual distortions as December futures on COMEX — where delivery begins late November — now trade nearly 6% below the spot rate. Such a wide backwardation typically signals a structural supply shortage or strong immediate demand, creating stress for leveraged traders and arbitrage desks.
Backwardation occurs when near-term physical demand outpaces available deliverable stock. For silver, this indicates a scarcity of physical metal at key delivery hubs, forcing traders to pay a premium for spot availability. It’s a scenario often preceding volatility spikes when derivative contracts adjust abruptly to reflect real-world shortage pressure.
In such phases, leveraged positions—particularly in short-sell arbitrage—face massive mark-to-market losses. When shorting spot and going long futures, a backwardation flip can erode collateral quickly. Track high-volatility setups and event-driven trading opportunities at Nifty Tip and be a part of a successful team. Arbitrage players in London and New York who relied on these spreads may be facing forced liquidations, compounding the squeeze.
The situation mirrors classical “short squeeze” setups where paper contracts exceed physical backing. As inventories tighten, futures traders covering shorts push spot premiums even higher, worsening the gap. If COMEX stocks continue declining while delivery obligations rise, a cascading rush for physical redemption could emerge.
In India too, silver’s spot price has surged well above December MCX futures — with premiums ranging between ₹20,000 and ₹22,000 per kilogram. This rare alignment across global and domestic markets points to synchronized supply constraints and heightened investor interest in tangible assets amid geopolitical risk.
Silver’s short squeeze potential has sparked renewed attention from global hedge funds and physical bullion investors alike. While fundamentals favor higher prices, liquidity tightness may cause erratic intraday swings. Follow expiry-linked momentum strategies with BankNifty Option Tip to understand short-covering and delivery dynamics.
This divergence between spot and futures is likely to persist until either inventories rebuild or demand cools. Until then, the silver market remains a study in how physical scarcity can overwhelm leveraged speculation.
Investor Takeaway
Indian-Share-Tips.com Commodity Strategist Gulshan Khera, CFP®, who is also a SEBI Regd Investment Adviser, observes that backwardation in silver reflects real scarcity, not speculation. Long-term investors should focus on liquidity management and price confirmation from physical deliveries before taking directional exposure in metals.
Related Queries
What Triggers a Short Squeeze in Commodities Like Silver?
How Do Arbitrage Traders Manage Risk During Delivery Tightness?
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
