The silver market alert has been fully sounded. The spot shortage is hitting the traditional trading system in an unprecedented way.

“This level of deep negative value is completely illogical!” Merkes pointed out. In normal market logic, the forward silver price should be higher than the spot price to cover storage, insurance, and financing costs. However, currently, the spot silver price is actually 7% higher than the one-year forward contract. This is no longer an ordinary signal but a clear warning: silver spot is experiencing a severe shortage.

This shortage is shaking the very foundation of the silver market. In the past, banks, producers, industrial users, and investors could complete bulk transactions through swaps without physical transfer, tightly linking the London physical market with the New York financial market. Now, this mechanism is facing failure—buyers no longer accept paper contracts and insist on physical delivery. Silver trading is forced to shift to cross-regional transportation worldwide, breaking the traditional closed loop.

The high holding costs of physical silver further exacerbate the abnormal market conditions. Silver worth millions of dollars weighs hundreds of kilograms and must be stored in professional vaults, equipped with high insurance and strict security systems. Such high holding thresholds highlight the extremity of the 7% spot premium.

What is even more alarming is the massive leverage behind the market. Merkes revealed that the scale of “paper silver” financial contracts in London could be up to 100 times that of physically deliverable silver. If investors holding paper silver collectively demand delivery, this extreme imbalance could trigger a lightning-fast market liquidation at any moment.

A structural crisis originating from the spot shortage is quietly brewing in the silver market.