Moneycontrol Pro Panorama | Silver: A market in turmoil

Like gold, silver commands genuine demand in physical markets.

Dear Reader,

Silver is experiencing a remarkable surge, having posted nine consecutive weeks of gains that have positioned it as the year's best-performing precious metal. Trading close to $50 an ounce in global markets, silver has achieved its strongest rally in four decades. Unfortunately for Indian buyers, this surge comes ahead of the festive season where demand for the metal traditionally peaks.

For investors disappointed by missing the gold rally, silver has emerged as an attractive alternative. Like gold, silver commands genuine demand in physical markets, driven by both industrial and investment buyers pursuing limited supplies.

According to Axis MF Research, global mine output is projected to reach its peak only by 2026, even as industrial demand has reached record levels. The demand is fuelled by physical need for the metal from green energy technologies, solar photovoltaics, electric vehicles, sophisticated electronics, 5G infrastructure, and semiconductor manufacturing.

What distinguishes the current market dynamics is an unprecedented shift in central bank behaviour. Saudi Arabia, traditionally focused on gold accumulation, has begun purchasing silver in significant quantities. This represents a rare departure from gold-centric buying patterns and has further exacerbated the supply shortage.

Simultaneously, relentless investment demand continues to propel prices upwards. According to Reuters, silver exchange-traded funds have attracted Rs 8,603 crore in inflows during the first eight months of 2025 alone, surpassing the entire previous year's inflows.

Yet, this booming market has created an unusual crisis. The shortage of physical silver has become so acute that three mutual funds have halted fresh investments in their silver ETFs. Since these funds must back their ETF units with actual physical purchases, the unavailability of silver has forced them to pause operations.

The strain is evident in the pricing disparities. ETFs are now trading at a premium of 15-18 percent above the spot price. While the landed price of silver stands at approximately Rs 5,000 per ounce, bullion dealers are demanding Rs 5,500 —a 10 percent spread that far exceeds the normal 0.5 percent variation. Kotak Mahindra Asset Management, one of the funds that has frozen fresh silver purchases, finds itself navigating these extraordinary conditions.

For India's commodity exchanges, particularly the Multi Commodity Exchange (MCX), where silver futures are actively traded, this rally has become a source of concern. Generally, the futures price trades at a premium to the spot market, taking into consideration the cost of carry. However, in the current scenario, futures are trading at a discount of Rs 15,000-20,000 per kilogram below street prices. This discount is a red flag, signalling a critical shortage of physical metal and underlying stress within the system.

The problem extends beyond mere pricing anomalies. Globally, silver inventories are deteriorating rapidly. Borrowing costs for the metal in London have surged to levels not seen in decades—an unmistakable sign of extreme tightness in available supplies.

For Indian exchanges, this can turn out to be a huge crisis that can impact global markets as India is the largest consumer of silver. Should traders holding long positions in silver demand physical delivery, the vaults may be empty. Neither MCX nor the market regulator has provided clarity on delivery verification procedures or whether short sellers actually possess the physical silver necessary to fulfil potential delivery obligations.

If sellers cannot produce silver when contracts expire, the consequences could be severe. Defaults could cascade through the system, creating a crisis of confidence and hamper India’s image as a global derivative market. All attention is now focused on the December 5 expiry date for outstanding contracts. The actions taken by traders holding long positions will prove decisive. If they roll over their positions into subsequent contracts, MCX can breathe easier. If they instead demand physical delivery, silver prices could experience dramatic and destabilising volatility.

Yet, volatility may be the lesser concern. This situation once again exposes the regulatory gaps and inadequate oversight. While the underlying fundamentals clearly support a sustained rally in silver prices, the market desperately needs cooling to restore equilibrium and sanity. Without intervention, what began as a legitimate bull market driven by genuine supply-demand dynamics risks becoming a dangerous squeeze with systemic implications.

MC Pro's Diwali Portfolio: Navigating volatility with proven strategies

While commodity markets experience turbulence and broader indices face headwinds, disciplined stock-picking continues to deliver results. The Moneycontrol Pro Diwali 2024 portfolio stands as proof of this principle, having delivered an impressive 8.3 percent return against the Nifty's modest 3.6 percent gain over the past year. Through meticulous research and dynamic rebalancing, the portfolio successfully navigated one of the most challenging periods for Indian equities. As markets remain at a crossroads with uncertainty persisting, the upcoming Diwali 2025 portfolio—launching tomorrow exclusively for Moneycontrol Pro subscribers—promises to bring another carefully curated selection of opportunities designed to outperform in the year ahead.

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