This week has been an absolute roller coaster in the precious metals space, with price action doing cartwheels and headlines barely keeping up. Spot silver on the Shanghai Gold Exchange finished Dec. 24, 2025, at a premium to futures contracts, a classic case of backwardation that hints at a snug physical market in China.
China’s Silver Market Enters Deep Backwardation as Demand Outpaces Supply in Shanghai
Silver prices on the Shanghai Gold Exchange climbed to lofty territory on Dec. 24, 2025, with the Ag(T+D) spot contract settling near 19,400 Chinese yuan per kilogram, or roughly $78.55 per ounce using the day’s USD/CNY rate of about 7.015.
That price tag placed Shanghai silver comfortably above the global yardstick on Comex, where futures wrapped up at $72.36 per troy ounce. The gap pointed to local strains in China’s market, where near-term physical demand looked heavier than available supply.
Silver backwardation—when spot prices top futures—made itself known in China’s silver contracts toward the end of 2025. On the Shanghai Futures Exchange, near-dated silver futures sat below the spot equivalent, with the main contract around 17,609 yuan per kilogram, or about $78.02 per ounce, confirming the inverted curve. Such a setup, far from business as usual, suggested traders preferred metal in hand now rather than promises later, often an early warning of supply stress.
The main force behind this backwardation traced back to thinning silver stockpiles in China, the world’s largest consumer of the metal. Inventories on Shanghai exchanges slid to multi-year lows by November 2025, pressured by strong industrial appetite that ran ahead of imports and local output. China’s solar panel industry, a heavy silver user for photovoltaic cells, grew sharply in 2025, helping fuel expectations of a global silver deficit for a fifth straight year.
Other contributors included supply hiccups from major mining regions beyond China, notably Peru and Mexico, where labor disputes and environmental rules trimmed production. These global bottlenecks restricted bullion flows into China, intensifying the local mismatch. Trade policy shifts and currency moves added to the mix, as a firmer yuan against the U.S. dollar raised import costs and nudged holders toward keeping metal close.
The first big blast higher in silver on the chart—circa 1979–1980—came courtesy of the Hunt brothers’ audacious bid to corner the global silver market. The brothers—chiefly Nelson Bunker Hunt and William Herbert Hunt—went on a buying spree in the 1970s, hoovering up physical silver and loading up on silver futures. The strategy was part inflation shield, part currency-hedge panic after the Bretton Woods system fell apart, with a side quest of gaining oversized influence over supply. That party ended abruptly when COMEX and the Chicago Board of Trade rewrote the margin rules, sending prices tumbling.
On the demand front, China’s electronics and electric vehicle industries added further pressure, since silver’s conductivity makes it indispensable for batteries and wiring. Investment demand heated up too in recent times, with retail buyers and institutions eyeing silver as a hedge against inflation and geopolitical strains, including U.S.-Venezuela tensions that indirectly influenced commodity routes. Together, these forces fed a loop in which higher spot prices encouraged hoarding physical metal instead of rolling into futures.
Also read: Crypto Traders Cry Foul as Bitcoin Lags Behind a Red-Hot Gold, Silver and Stock Market
The backwardation has sent ripples across China’s silver market, bringing sharper day-to-day price swings. Trading volumes on Shanghai exchanges jumped, with reports of brisk activity as speculators lined up for possible short squeezes. Silver lease rates-essentially the cost to borrow physical metal—rose to record territory, signaling tight conditions in the lending pool.
Chinese producers reacted by speeding up sales to take advantage of elevated spot prices, a move that could ease immediate pressure but risk future supply gaps if investment in mining falls behind. Industrial users, meanwhile, faced steeper input costs, which could filter through to higher prices for exports such as solar panels and electronics. This dynamic highlighted silver’s split personality as both a factory input and a financial plaything.
Beyond China, the backwardation echoed through global pricing, with Comex futures showing sympathetic moves even as inversion remained milder in Western markets. Analysts have warned that ongoing deficits could propel silver toward triple-digit prices if supply fails to recover in 2026. Still, Federal Reserve rate decisions and economic momentum in regions like the U.S. and Europe could temper the pace.
Traders kept a close watch on inventory data, treating Shanghai warehouse levels as a pulse check on market tightness. By late December 2025, withdrawals from these stocks continued, reinforcing the backwardated curve and sparking calls for more recycling and alternative sourcing. Comparisons to past squeezes surfaced, though specialists cautioned that any resolution hinges on supply chain adjustments.
In sum, China’s silver backwardation in 2025 points to deeper structural strains in the global market, where demand from green technologies has been outpacing mine supply growth. As the year wraps up, Shanghai’s premium over Comex has held firm, a sign that physical imbalances could spill into the new year unless policy shifts or production gains step in.
