The silver market might be setting up for a structural shock in 2026. A tightening physical supply colliding with a leveraged futures and derivatives market is a frightening prospect.
The latest episode of The Sirius Report cast a spotlight on the setup, framing the ongoing dynamics on COMEX and the London Bullion Market Association as a potential silver time bomb.
The Physical Market Disconnect
According to these independent researchers, the core issue lies in the divergence between the physical and paper markets. On one side are mined ounces, refinery output, industrial demand, and sovereign stockpiles. On the other is a tower of futures, options, forwards, and OTC swaps referencing silver, but not necessarily backed by metal.
Sirius notes how China and India have quietly become the real centers of gravity in the silver market. Official Chinese imports and industrial use run in the 10,000–20,000 metric ton per year range, but the commentary highlights “unofficial” flows that may be “significantly larger,” with a portion reportedly diverted into undisclosed state-controlled vaults.
Much of this metal, they argue, is treated as a strategic reserve, off-market and only deployable under national security considerations. At the same time, inventories on the Shanghai exchanges are described as “at decade lows.”
The World Gold Council estimated the physical gold market at $5 trillion in 2023. Yet, paper claims increasingly dominate the markets in the West. Sirius cites an estimate of $21 trillion in derivatives today, potentially rising toward $26 trillion by 2030.
The Futures Market Layout
Understanding the futures structure is key. On COMEX, most contracts are never settled with metal. Traders typically roll their positions, closing a near-month contract and opening a later one. Thus, open interest can increase without an equivalent draw on vaults.
The critical moment is when holders stand for delivery instead of rolling. That is when paper claims must meet physical inventory.
When silver began breaking out a week ago, roughly 8,300 contracts (equivalent to around 41–42 million ounces) stood for delivery. COMEX abruptly halted activity for several hours, claiming a data center outage.
However, the setup for March 2026 is drawing special attention. While open interest for the near months is less than 4,000 for January and around 1,000 for February, March stands out at over 118,000 contracts.
In practical terms, this is equivalent to 600 million ounces of physical silver. Sirius points out that there is no way of meeting such demand. Arguably, even if 10-20% of it were to stand for delivery, the required metal would exceed the readily available free float.
March is still relatively far away, but monitoring this open interest should be on the radar for precious metal investors and speculators.
Arguably, the setup is the exact opposite of the oil futures crash in April 2020. Back then, speculation went through the roof, with open interest exceeding storage capacity by 6:1. At the peak of the panic, oil went negative for the first time in history, reaching -$37.62 per barrel.
If anything remotely similar happens in reverse on the precious metals market, the aftershock could break far more than a cooling fan in a metals exchange data center.
Price Watch: iShares Silver Trust (NYSE:SLV) is up 92.20% year-to-date.
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