COMEX Silver Inventories Hit Lowest Level Since Last March, Potentially Triggering Silver Short Squeeze

COMEX silver inventories have dropped to 415 million ounces, the lowest level since March 2025. This sharp decline has raised concerns about a potential short squeeze as physical demand for silver remains robust. Short sellers are struggling to secure enough physical silver to settle futures contracts, which is driving up prices.

The drop in silver inventory is a signal of strong physical demand in the market. As short sellers are unable to source enough physical silver, they are forced to pay higher prices to meet their obligations. This dynamic is pushing silver prices higher and creating a feedback loop as more traders are incentivized to cover their positions to avoid losses.

Silver prices are expected to continue rising in the coming weeks as the short squeeze intensifies. Market conditions are tightening due to the combination of elevated demand and limited supply, which is likely to result in further price increases. Analysts are monitoring the situation closely for signs of market stabilization.

Why Did This Happen?

The decline in COMEX silver inventories reflects a broader trend of strong investor and industrial demand for the metal. The Sprott Silver Miners & Physical Silver ETF (SLVR) has surpassed $1 billion in assets in just over a year, showing that institutional and retail investors are increasingly allocating capital to silver-related investments.

The ETF provides exposure to both physical silver and companies involved in silver mining. This diversification has helped attract a wide range of investors looking to capitalize on the metal's performance. The success of the fund is a testament to the growing importance of silver in both monetary and industrial contexts.

How Did Markets React?

The silver market is currently experiencing elevated delivery volumes as investors and traders move physical silver out of COMEX vaults. This trend is indicative of a market in backwardation, where the spot price exceeds the futures price. Such conditions are often associated with supply shortages and strong immediate demand.

Physical silver is leaving the COMEX vaults at an accelerated rate as traders seek to take delivery of the metal. This is a significant development because it shows that the market is prioritizing physical ownership over paper contracts, which is a sign of deepening confidence in silver as a store of value.

The recent surge in demand has been driven by both institutional and retail investors. Tokenized gold and silver products are also gaining traction, allowing for 24/7 trading and real-time price discovery. This has further amplified the momentum in the physical silver market.

What Are Analysts Watching Next?

Market participants are closely monitoring COMEX inventory levels as a key indicator of future price movements. The current level of 415 million ounces is a record low and could trigger further price increases if the trend continues. Analysts are also watching the open interest relative to physical stocks, which is currently in a tight range.

The backwardation in the silver market is another important factor that analysts are keeping an eye on. This condition typically signals strong demand and a potential shortage in the physical market. If backwardation persists, it could lead to further price appreciation and increased market volatility.

Investors are also paying attention to the performance of the Sprott Silver Miners & Physical Silver ETF. The fund's ability to maintain and grow its assets is seen as a barometer of investor sentiment toward silver. Any significant outflows could indicate a shift in market dynamics.

In addition to ETF performance, analysts are also monitoring the broader macroeconomic environment. Factors such as inflation, geopolitical tensions, and interest rates can all impact silver prices. The current surge in gold prices and the shift in investor sentiment toward gold as a store of value could also influence the silver market.