This game is far from over— the next wave of price increases may not stem from optimism, but rather from the "must-buy" demand.

Author: Jeffrey Christian’s Wig

Translation by: Deep Tide TechFlow

Original link: https://x.com/silver207141/status/2019397406639493172

The silver market at the beginning of 2026 did not experience ordinary fluctuations, but rather typical symptoms of a system under ultimate pressure. Spot prices soared to a historic high of $121 per ounce in late January, only to face one of the most brutal single-day crashes in commodity history, with a drop of 31-36% in a single day. Although prices briefly rebounded above $100, they quickly returned to a downward trend. Futures contracts also fell into chaos, with the February 2026 contract plummeting 8-9% in a series of liquidations triggered by multiple margin increases (now at 60%) at the Chicago Mercantile Exchange (CME).

While mainstream commentary attributes this to macro factors such as leveraged speculation, margin calls, and a strengthening dollar, underlying data reveals a more alarming fact: the physical silver market is extremely tight, and the paper futures market is structurally unable to match the deliverable supply. The COMEX exchange, part of the CME Group, the world's largest metal futures and options trading platform, currently shows signs pointing to a very high probability of "delivery failure" for COMEX contracts—most notably for the upcoming March 2026 contract.

Global silver supply has been in a continuous shortage for five years, with a projected gap of nearly 200 million ounces in 2026. Driven by solar panels, electric vehicles, 5G infrastructure, AI hardware, and medical applications, industrial consumption is growing far faster than mine production. China has designated silver as a strategic asset and implemented export restrictions, cutting off a major supply source globally and accelerating the depletion of existing inventories.

Meanwhile, the United States has included silver in its "Critical Minerals List" and announced the launch of the "Project Vault" to stockpile critical minerals. You wouldn't do this when silver is abundant. Reports indicate that the inventory at the Shanghai vault has fallen to its lowest level since 2016.

Internally at the COMEX, the numbers appear particularly grim. Since 2020, the "Registered" silver inventory (available for immediate delivery) has shrunk by about 75%, currently hovering around 82 million ounces. Although total inventory is close to 411 million ounces, the vast majority is classified as "Eligible," rather than immediately deliverable. In just one week in January 2026, over 33 million ounces were withdrawn, equivalent to 26% of the registered inventory disappearing in a matter of days. The delivery volume for February has already reached 2,700 contracts (13.8 million ounces), and this growth shows no signs of slowing down.

At the same time, the open interest for the March 2026 contract remains between 85,000 and 91,000 contracts, theoretically representing a delivery demand of 425 million to 455 million ounces.

Data Comparison:

• Deliverable physical: Approximately 82 million - 113 million ounces
• Paper short positions: 425 million - 455 million ounces
• Leverage ratio: Optimistically estimated at 5:1, in extreme cases even exceeding 500:1.

Even if only 20% of the open contracts require physical delivery (based on historical experience, this is a conservative estimate), COMEX simply does not have enough physical metal to meet its obligations.

Price volatility itself is evidence of systemic fragility. The parabolic surge to $121 was triggered by short covering and a squeeze in an environment of liquidity exhaustion. The subsequent crash was not due to large-scale physical sell-offs, but rather CME's forced margin increases, which compelled leveraged participants to liquidate collectively. Such "smashing" often occurs under conditions of extremely low trading volume—sometimes selling just 2,000 contracts and quickly buying them back can trigger dramatic price swings, highlighting the long-term lack of liquidity.

Currently, the market has repeatedly shown signs of "backwardation," and the "Exchange-for-Physical (EFP)" spread has widened to $1.10 per ounce, strongly signaling that physical demand is exceptionally urgent, while the paper market is unable to meet it.

The math is ruthless. Derivative forms of paper silver remain abundant, but physical silver is becoming increasingly scarce. Volatility is not random noise; it is a desperate attempt by the market to ration the dwindling physical supply while the paper structure still pretends to be ample.

Senior analysts have sounded the alarm: March 2026 may mark the "funeral of COMEX." Should a delivery failure occur, it would not just be a story about silver; it would expose the long-standing fragility of some reserve commodity futures trading and could trigger a chain reaction in global financial markets.

For the discerning investor, the information is clear enough: the disconnection between paper promises and physical reality has reached a critical point. In this environment, holding physical silver outside the system is becoming the only reliable means of storing value.

This game is far from over— the next wave of price increases may not stem from optimism, but rather from the "must-buy" demand.

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