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Early this year, high premiums developed for COMEX bars in the U.S. thanks to fears of tariffs on importing silver (and gold). In response, traders shipped an estimated 300 tons of silver from London to New York to alleviate that squeeze.

Last month, the London Bullion Market ran into some issues of its own with respect to silver – with huge premiums, high financing costs, and far more requests for delivery of actual bars than the market could handle.

The catalyst for the shortage in London was driven by demand from India – and this came on the heels of a partial drain of silver sent to the U.S. combined with new silver ETF investment inflows.

This year’s Diwali holiday saw many Indians shift from buying gold to silver because the yellow metal has become so expensive.

During the peak of buying in mid-October, premiums for silver there reached as high as $5/oz. Major Exchange Traded Funds (ETFs) for silver were unable to procure silver fast enough and suspended new subscriptions.

The holiday rush has passed and demand has lessened. The surge in silver imports alleviated the supply crunch.

Indian silver premiums have fallen back to a more normal range of 25 to 40 cents an ounce.

The London silver market has also returned to a more even keel. However, the current equilibrium in the markets may be short-lived.

This year’s spike in demand from India likely isn’t a one-time phenomenon.

Silver ETFs in India now hold triple the amount of metal versus a year ago. That metal is stored in local vaults and odds are most of it will remain there. In other words, it won’t be returning to London.

At the very least, unless gold prices fall substantially, we can expect another surge in silver demand from the huge population of India when Diwali rolls around next year.

The small shift in interest from gold to silver in India could be signaling a bigger trend. Given the dramatic rise in gold prices, it is fair to say Indians probably aren’t the only investors and consumers around the world who will increasingly turn to silver.

For its part, the Chinese government just made a change which could reduce the amount of silver coming to market. Silver was added to a list of supervised commodities effective November 1. Exports will be managed with an eye toward prioritizing domestic needs.

Given that Chinese exports of silver were equal to 13% of global demand last year, the move is likely to have significant repercussions.

The U.S. government just made a similar designation. Silver has just been officially added to the list of “critical minerals.” Only time will tell exactly what this designation will do, but government stockpiling of silver is one possible outcome.

Russia recently allocated $535 million in an effort to build strategic reserves of silver, platinum, palladium, and gold. Government officials there view precious metals as “sanction-proof.”

The European Union named silver in the Critical Raw Materials Act of 2023. The metal is now deemed vital in the EU’s dreams for an energy transition.

Governments around the world clearly have growing concerns over the availability of silver. Investors can expect these nations will make efforts to reduce exports which feed markets such as London and the COMEX.

There is a good reason for concerns about supply. This year will be year number five of a large and ongoing supply deficit, according to the Silver Institute. Miners are not keeping up with demand from both investment and industry.

The recurring volatility in markets is another indication that there is not enough free float of silver in the markets to meet demand.

Unless silver miners can respond to demand, shortages probably aren’t going away. Higher silver prices ought to help, but increased production has yet to show up in forecasts.

The Silver Institute expects production will rise slightly in 2026 to 850 million ounces, then dwindle back towards 800 million ounces by 2030. Global demand, meanwhile, is expected to remain above 1.1 billion ounces.

Finding and building mines is a difficult business. Miners face challenges around the world ranging from geopolitical turmoil, such as ongoing strife in South Africa, to regulatory hurdles and depleting reserves.

The reported discoveries of new deposits are nowhere near sufficient to close the gap. Miners in the U.S. reported just 2.4% growth in primary silver reserves last year. In other parts of the world, published reserves are in decline.

Owing paper silver isn’t working out too well this year for traders who don’t actually have the bars to deliver.

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