Silver Finds Support in Physical Supply Squeeze

A fundamental supply issue is now taking center stage in the silver market, cutting through weeks of price volatility. Critical physical inventories are being drawn down at a rapid pace, creating a supportive backdrop for the industrial metal. This dynamic is being driven by a confluence of factors: stringent export controls from a major producer and alarmingly depleted stockpiles in key trading hubs.

Geopolitical Tensions Amplify Demand

Beyond the tangible supply crunch, geopolitical developments are fueling demand. Recent reports of potential disruptions to shipping through the Strait of Hormuz have put commodity markets on high alert. In such an environment, silver’s dual role as an essential industrial input and a perceived safe-haven asset comes to the fore. This was reflected in recent trading, with the metal closing the Friday session at $69.76, a gain of 1.11 percent. This move helps to stabilize prices after a challenging 30-day period that saw silver decline by more than 22 percent.

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Warehouse Inventories Evaporate

Data from COMEX warehouses reveals the extent of the supply pressure. By the end of February, registered silver stocks had fallen to approximately 86.1 million ounces. This represents a dramatic drop of over 30 percent in just a few months. The global supply deficit is being structurally exacerbated by policy moves. Since the start of the year, China, a crucial exporter, has been restricting shipments of refined silver. For the global semiconductor industry, this translates into a tangible shortage of a vital raw material.

Strong Fundamentals Amid Price Correction

While the current price near $70 marks a significant pullback from the 52-week high of $116.89 reached in late January, underlying fundamentals appear robust. Although silver continues to trade about 16 percent below its 50-day moving average, a key metric suggests relative strength. The gold-to-silver ratio has declined to a range between 55 and 62, indicating silver is gaining ground against its more expensive peer. As long as Chinese export restrictions remain in place and geopolitical risks stay elevated, these core factors are likely to provide a floor, insulating the silver price from steeper declines.