Silver prices have surged to record levels in recent times. While the rally has drawn strong retail interest, recent research from Motilal Oswal and HSBC Global Investment Research suggests the current phase of the silver market is being driven by constraints in physical supply rather than trading activity alone.
Both research houses point to falling inventories, repeated physical supply deficits and signs of stress in vault systems. Their analysis places renewed focus on how silver is stored, delivered and settled at a time when physical metal has become harder to source.
Fifth straight year of physical deficit
In its December 2025 Commodities Insight report, Motilal Oswal said the silver market in 2025 has moved beyond a typical price rally and is being shaped by prolonged supply tightness.
The brokerage stated that this phase “is not random volatility; it is the culmination of years of supply deficits and intensifying physical demand.” It added that 2025 marked the fifth straight year of a physical silver deficit, with mine supply unable to match industrial and investment demand.
HSBC, in its January 7, 2026 Silver Outlook, quantified the shortfall. The bank said, “Based on our supply/demand model and data from The Silver Institute’s 2025 Interim Report, silver ran a 230m ounce (moz) deficit” in 2025.
While HSBC expects this deficit to narrow in the coming years, it said the imbalance in 2025 contributed to the tight availability of deliverable silver.
China’s inventories fall to decade lows
Motilal Oswal identified China as a key factor tightening global supply. The brokerage said China is “one of the largest refiners and consumers (net importer) of silver” and noted that during 2025, “physical inventories in Chinese vaults have steadily been drawn down to decade-low levels.”
According to the report, these outflows were driven by “a mix of industrial demand, investment accumulation and possible hoarding,” leaving visible inventories “at their most constrained in many years.”
Motilal Oswal also pointed to a policy change effective January 1, 2026, stating that “proposed export licensing requirements beginning January 1, 2026 signal Beijing’s intent to retain more silver domestically or at least regulate the pace at which it leaves Chinese borders.”
Persistent price gaps between markets
Motilal Oswal said these inventory drawdowns and policy measures have already altered price behaviour. According to the brokerage, “Shanghai spot often trades $5–$8 above COMEX futures, and in some cases even more.”
Under normal conditions, such price gaps are closed through arbitrage. However, Motilal Oswal said the current premiums exist “not because of mispricing but because real deliverable supply is simply not there to enforce convergence.”
This breakdown in arbitrage has meant that physical and futures markets are no longer aligning as they typically do.
Stress inside COMEX vaults
Motilal Oswal also highlighted stress within the COMEX vaulting system during late 2025. The brokerage said COMEX faced a “vault drain crisis” when “more than 60% of its registered silver inventory was claimed for delivery within just four trading days.”
The report added that this episode “revealed just how little deliverable metal remained on hand relative to outstanding futures positions.”
Motilal Oswal further noted that open interest on COMEX futures “continues to vastly exceed physical availability,” pointing to structural pressure in the system.
Concentration of inventory
The brokerage also flagged concentration risk within exchange inventories. According to Motilal Oswal, “JPMorgan controls around 196 million ounces of silver within the COMEX system, representing nearly 43% of the exchange’s total inventory.”
In addition, it said the bank serves as custodian for “over 500 MoZ held in SLV-related stockpiles,” meaning a significant portion of reported inventory is held under custodial arrangements.
Motilal Oswal said that “a significant portion of COMEX’s supposed inventory is effectively in a bottlenecked state, awaiting conversion to deliverable status if physical settlement demands spike.”
HSBC flags tightness and volatility
HSBC, in its January 2026 outlook, acknowledged similar near-term constraints. The bank said, “Tightness in the London market and extreme backwardation on the CME futures markets underscore the near-term shortage of deliverable silver.”
It added that this shortage “may not be resolved until later in 2026,” even though prices have already moved sharply higher.
HSBC also cautioned that while tightness is real, price behaviour has become unstable. The bank said it expects “conditions to remain volatile, with likely upside spikes, until near-term tightness is alleviated.”
Supply response remains limited
On supply, HSBC said global silver mine output continues to rise but remains constrained. The bank noted that “lower ore grades and mine closures will be offset by new projects and facilities expansion,” but added that “long lead times inhibit output.”
HSBC estimated global silver mine production at around 813 million ounces in 2025, with recycling supply at about 197 million ounces for the year. It said recycling increases tend to lag price spikes and become more pronounced only after prices stabilise.
Demand begins to react to high prices
HSBC said high prices have already affected demand patterns. According to the bank, “Industrial demand is weakening, as is jewellry,” while investment demand remains strong.
It added that high prices have led to “price-related resistance lowering purchases” across several usage segments.
Conclusion
Neither Motilal Oswal nor HSBC commented on individual investment products. However, Motilal Oswal said the current market environment shows that “paper markets such as COMEX and LBMA, long dominant as liquidity hubs, are increasingly struggling to reflect true physical tightness.”
HSBC, while more cautious, also noted that thin inventories and high volatility can amplify differences between physical availability and paper liquidity.