Silver Drops 19% Even as China Hoovers Up Global Supply

Silver Drops 19% Even as China Hoovers Up Global Supply

China is aggressively pulling silver out of international markets to feed its industrial appetite, yet the metal has shed nearly a fifth of its value this month - a disconnect that deserves attention.

What to know

• China has significantly increased silver imports, redirecting physical supply away from Western vaults and exchanges to meet surging domestic industrial demand.

• Silver has fallen 19.5% over the past month to $69.66/oz despite tightening physical availability, with the gold/silver ratio compressing to 65.7.

• The divergence between shrinking global supply and falling prices echoes previous episodes where paper market selling masked a physical squeeze building beneath the surface.

What happened

China has been steadily draining silver from global markets. Physical metal that would typically flow into London and New York vaults is being rerouted eastward at a pace that marks a clear acceleration from previous years. Chinese imports of silver have surged as the country’s solar panel manufacturing boom, electronics sector, and growing EV production consume enormous quantities of the metal.

Yet silver sits at $69.66/oz - down 19.5% from its monthly high near $86.52 and 13.2% lower on the week alone. The gold/silver ratio has compressed to 65.7, which in isolation looks healthy, but the speed of silver’s decline relative to gold - which itself has pulled back 12.1% from its $5,405 peak - suggests broad deleveraging rather than any silver-specific weakness.

Who’s involved

China’s photovoltaic industry is the dominant force here. The country now manufactures over 80% of the world’s solar panels, and next-generation cell designs are consuming more silver per unit than their predecessors. This structural demand sits alongside China’s strategic metals stockpiling programme, which has expanded beyond rare earths into silver and other critical industrial inputs.

On the other side, Western financial markets are driving the price action. Speculative positioning on COMEX has unwound sharply as broader risk appetite has soured. Managed money longs have been trimmed aggressively, and the resulting paper selling has overwhelmed the physical tightness signal.

Refiners and bullion banks are caught in the middle. London Bullion Market Association vault holdings have been declining, and delivery times for large physical orders have reportedly stretched. The disconnect between available metal and screen price is widening.

Why it matters

This pattern - physical tightness masked by futures market selling - has historical precedent, and it rarely resolves quietly. In 2020 and again in late 2024, similar divergences preceded sharp upward repricing once the speculative selling exhausted itself and physical reality reasserted control.

The structural picture for silver is the tightest it has been in decades. Industrial demand now accounts for well over 55% of total annual consumption, up from roughly 45% a decade ago. Solar alone is expected to consume over 250 million ounces annually by 2027. Mine supply, meanwhile, has been essentially flat for years, with primary silver miners struggling to bring new capacity online amid rising costs and permitting delays.

China’s behaviour adds a geopolitical dimension. By pulling physical metal into domestic stockpiles and supply chains, Beijing is reducing the buffer available to Western markets. If investment demand returns - and at $69.66 silver remains historically cheap relative to gold - the squeeze could be severe.

The month’s 19.5% pullback looks like a macro-driven correction rather than a fundamental repricing. Gold’s parallel retreat from $5,405 to $4,575 confirms this is about positioning and liquidity, not a reassessment of silver’s supply-demand balance.

What to watch

COMEX registered inventory levels matter most from here - any further drawdowns below already-depleted levels would signal that physical tightness is intensifying despite lower prices. The Shanghai premium over London spot confirms genuine demand rather than speculative noise when Chinese buyers are paying above global benchmarks.

The gold/silver ratio at 65.7 has room to move in either direction. A push back above 75 would suggest silver is being treated purely as a risk asset. A compression toward 55 - where it traded during silver’s strongest runs - would indicate the market is beginning to price in the supply crunch, though that remains speculative for now.

This article is for informational purposes only and does not constitute financial advice. Always do your own research before making investment decisions.