COMEX Silver Inventories Drain Rapidly as Short Squeeze Goes Full Swing

Silver futures surged to $117.75 per ounce on January 29, 2026, amid a deepening short squeeze in the COMEX silver market. The rally marks a 275% gain since 2025, driven by a rapid depletion of physical silver inventories and heightened demand from both investment and industrial sectors. Warehouse stocks have dropped to levels insufficient to cover open futures positions, raising concerns about delivery capabilities. With only 14% of outstanding futures contracts backed by registered inventory, the risk of operational stress on the exchange has intensified.

The Sprott Silver Miners & Physical Silver ETF (SLVR) has reached $1 billion in assets, reflecting investor interest in the metal. The fund focuses on silver miners and physical silver, a unique exposure within the ETF space. The ETF's success highlights growing demand for direct silver exposure as prices climb.

Southern Copper Corporation also reported a strong increase in silver production in 2025, exceeding initial guidance. The company attributed the increase to the discovery of high-grade ore pockets and operational improvements at its zinc concentrator in Buenavista.

What Are the Implications for the Broader Commodities Market?

The tightening in the silver market is not isolated. Citi Research raised its silver price forecast to $150 per ounce, citing geopolitical risks and renewed concerns about U.S. monetary policy. These factors are expected to sustain strong investment demand and physical market imbalances.

Meanwhile, other commodities show divergent trends. Iron ore has declined due to high inventory levels at Chinese ports, while copper faces pressure from softening demand. Gold, in contrast, remains stable with a coverage ratio of 35.7%, nearly double that of silver.

What Are Analysts Watching for in the Near Term?

Market analysts are closely monitoring the backwardation structure in silver futures. The current situation, where spot prices exceed futures prices, indicates an imbalance between immediate physical demand and supply. This structure is unusual for a market with typically long-term supply chains.

The backward rolling of futures contracts is another key indicator. Traders are rolling positions from March into earlier delivery months like January and February, suggesting an urgent demand for immediate physical silver. This behavior diverges from typical market practices and indicates stress in the delivery process.

The physical-to-paper ratio is also a focal point. The ratio reached 528:1 in the March 2026 futures contract, meaning there are 528 paper ounces for every physical ounce available for delivery. This imbalance raises concerns about the market's ability to fulfill large-scale delivery requests.

Industrial demand, particularly from the solar industry, is a major driver of silver's upward pressure. Silver now accounts for 29% of solar panel production costs, up from 14% in 2024. This rise has pushed silver to the forefront of manufacturing expenses, making it a critical factor in the energy transition.

The structural deficit in the silver market has persisted for over four years, according to the Silver Institute. This ongoing depletion of above-ground stockpiles continues to drive prices higher, supported by elevated lease rates and widening physical premiums in global markets.

Investors are also watching for potential regulatory or exchange interventions. Should the situation become too volatile, the CME or CFTC may introduce position limits or margin hikes to stabilize the market. These measures could impact both short-term volatility and long-term market structure.