Silver’s Tough Now, But Why Physical Silver Could Surge Later

The silver market has entered a volatile transitioning phase driven by a combination of surge in demand, supply tightening (especially via regulatory barriers), and structural shifts in how silver is priced—namely growing divergence between physical and paper markets. 2025 saw silver rally by approximately 150–160%, largely propelled by solar energy demand and broader industrial usage [2][14].

One key near-term catalyst for the drop in late December was the CME’s decision to raise margin requirements for silver futures. On December 26, CME issued Advisory No. 25-393, raising margins for March 2026 silver futures to approximately USD 25,000 per contract (from roughly USD 22,000), a ~13–14% increase, effective Dec 29. Then on Dec 30, following continued volatility, margins were raised again—to approximately USD 32,500 per contract, an additional 30% jump [13][4][5]. This “one-two punch” forced leveraged long holders to liquidate, triggering sharp price drops of around 8–11% intraday [13][12][14].

Simultaneously, China is imposing new export licensing on refined silver starting Jan 1, 2026. Under the regime, exporters—aperiodic or new—must meet rigorous criteria: export history 2022-2024, minimum production levels (e.g. ≥80 tonnes), and proof of operational standards. The policy replaces the previous quota system, and analysts expect it to reduce global exports by 60–70%, squeezing foreign supply and increasing global physical tightness[16].

The primary physical market signals correlate: premiums in Dubai (~USD 91/oz) and Shanghai (~USD 85/oz) versus COMEX futures (~USD 75/oz), plus high backwardation in London OTC, imply a disconnect between what is being traded in paper futures and what is deliverable physically—physical appears “expensive” relative to futures [primary source].

Longer-term drivers remain positive: the solar sector breaks even only if silver is ~USD 134/oz, well above current spot, and predicted demand for solar is projected to reach 450 million ounces by 2030, with growing demand from data centers as well. Meanwhile, copper substitution is theoretically possible but in practice has a payback period of ≈18 months, which currently limits its appeal for industry [primary source].

Strategic implications: Long investors may need to be cautious in the near term given margin pressure and regulatory tightening; those accumulating physical silver or exposure to supply scarcity may benefit over time. Exchange and regulatory policy now play outsized roles in pricing dynamics, particularly for participants controlling physical vs paper silver. Market participants should monitor China licensing outcomes, exchanges’ further margin policies, and how industrial substitution plays out.