On December 24, 2025, the physical silver price on the Shanghai Gold Exchange (SGE) closed at $78.49 per ounce, as PHYSICAL silver premiums over the COMEX silver futures prices exploded to over $8/oz!
This widening gap between Asia’s primary physical delivery market and the Western paper futures benchmark highlights growing strains in global silver supply chains.
The SGE, through contracts like Ag(T+D), facilitates direct physical trading and delivery, making its benchmark a closer reflection of immediate physical demand—particularly in China, the world’s largest consumer of silver for industrial uses such as solar panels, electronics, and electric vehicles.
In contrast, COMEX futures are predominantly paper contracts, often settled in cash or via exchange-for-physical (EFP) mechanisms that can delay or divert actual metal delivery.
An $8+ premium in Shanghai indicates robust buying interest for deliverable physical silver in Asia, outpacing the willingness of sellers to supply at COMEX-aligned prices.
This divergence often emerges during periods of physical tightness, where importers and industrial users in China bid aggressively to secure metal amid import restrictions, vault outflows, or surging domestic demand.
Recent reports have noted sharp drawdowns in Shanghai vaults and elevated premiums persisting even in volatile markets, driven by structural deficits and geopolitical hedging.
Implications for physical silver markets going forward:
Eastern price discovery gaining influence:
As China’s industrial and investment demand dominates global consumption (over 50% in some estimates), sustained Shanghai premiums could pull global physical pricing higher, forcing COMEX and London benchmarks to catch up through arbitrage or forced deliveries.
Risk of backwardation and squeezes:
Widening basis spreads signal potential shortages for immediate delivery, encouraging hoarding and further premium expansion. This could accelerate outflows from Western vaults if arbitrage flows reverse.
Astonishingly, silver has extended into backwardation today in China, even with $7/oz premiums to COMEX futures prices, as the immediate demand for physical silver metal reaches acute stress.
Bullish outlook for physical holders:
Investors favoring allocated physical silver (e.g., bars or coins) over paper exposure may benefit as real-world scarcity reprices the metal upward, especially if industrial demand from green technologies, AI, and medical remains strong. New demand for Silver solid state batteries threatens to drive silver into an even more acute shortage in 2026.
While paper markets like COMEX dominate trading volume, persistent physical premiums in Shanghai serve as a reality check—suggesting the true cost of owning silver today is increasingly set in the East.
Market participants should monitor SGE vault levels and import data closely for signs of further decoupling.
