Last Friday, the silver market experienced what appeared to be a historic collapse. Price smashed from the $118 area down to the low $70s in a matter of hours, wiping out weeks of gains in a single session.
There was no war, no surprise interest-rate hike, no industrial demand shock. Just a sudden, violent move that left traders staring at their screens wondering what happened.
Analysts from the Sirius Report summed it up as an impossibility.
"We called it a ‘10 sigma event,' which is organically an impossibility. It can only happen with artificial stimulus," they said in a weekend analysis.
The first clue comes from the volume— the scale of the trading was completely detached from reality. On the day of the crash, total volume hit 368,000 contracts — about 1.9 billion ounces of silver, the equivalent of two and a half years of global mine supply.
That alone tells you this wasn't physical metal changing hands. This was leverage hitting leverage, stops triggering stops, and large players forcing prices back to a level that mattered to them. It was a reset, not a liquidation.
A Silver Bird In Hand
Yet despite the collapse, physical silver didn't show up for sale. It remained in backwardation throughout the collapse.
A higher price of spot silver in contrast to a future price makes no sense under normal circumstances. That means buyers were still willing to pay more for silver right now than for silver delivered months from now.
In a true selloff, that relationship flips. Immediate supply overwhelms demand, spot prices fall, and futures trade at a premium. That didn't happen.
Backwardation is the market whispering an uncomfortable truth. Available silver is scarce. Delivery later is uncertain, and possession today matters more than promises tomorrow. You don't get that signal in a market flooded with metal. You only get it when the physical side is tight and refusing to cooperate with paper price signals.
East-West Premium Deepens
Former COMEX floor market maker Vince Lanci reflected on the situation in a recent interview.
"Silver is a physical market that has outgrown its futures market. The futures market isn't handling the physical demand," he said. Lanci also explained why the squeeze is real and global. China, heavily dependent on silver for solar panels, is scrambling for supply.
"They are going around the world saying, ‘Give us what you got,'" he said. At the same time, JPMorgan and American bullion banks are pulling silver concentrate into the US. We have the silver, but China has the refineries. We can’t refine it fast enough, and they have nothing to refine. That creates a self-squeeze."
While Western prices bounced back toward $85, Shanghai ended the week trading near $115, a massive $30 spot premium.
"Shanghai reflects physical reality; it's a one-for-one contract. In the West, we have no idea what the ratio of paper to physical is," the Sirius Report noted.
Despite the worst silver selloff in years, March open interest dropped by only about 6,000 contracts. More than 90,000 contracts remain open, representing roughly 450 million ounces still standing after the dust settled. As March draws near, that open interest remains an unknown variable yet to be resolved.
Price Watch: Sprott Physical Silver (NYSE:PSLV) is up 1.65% year to date.
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