The Silver Short Squeeze: Only 14% of Futures Are Covered

Silver futures surged past $117 on January 29, extending a historic rally with 275% gains over the past year. A severe physical supply crunch is driving the surge. Warehouse inventory now covers just 14% of outstanding futures positions.

A confluence of depleted inventories, oversized commercial short positions, and unusual backward contract rolls points to a textbook short squeeze now unfolding in real time.

Warehouse Inventories Under Pressure

According to the latest CME warehouse stock report dated January 27, total silver holdings in COMEX-approved depositories fell to 411.7 million ounces. More critically, registered inventory—the only metal available for immediate delivery against futures contracts—dropped to 107.7 million ounces.

Registered stocks fell by 4.7 million ounces in a single day. Metal was either withdrawn from vaults or converted to eligible status. Eligible silver is not available for futures delivery.

With total open interest standing at 152,020 contracts (equivalent to 760 million ounces), the registered inventory covers only 14.2% of outstanding paper claims. This means that if even a fraction of futures holders demand physical delivery, the exchange could face severe operational stress.

Commercial Short Positions Exceed Deliverable Supply

Data from the Commodity Futures Trading Commission (CFTC) Commitments of Traders report, surveyed on January 20, reveals the extent of the short-side pressure.

Commercial traders—primarily banks and dealers—hold 90,112 contracts short against 43,723 long. Their net short position totals 46,389 contracts, or about 231 million ounces.

This net short position is more than double the 108 million ounces of registered silver available for delivery. Should longs aggressively stand for physical settlement, short sellers would be forced to source metal in an increasingly tight market, potentially accelerating price gains.

Backwardation and Backward Rolls Signal Stress

The silver market has remained in backwardation—where spot prices exceed futures prices—since early October. This pricing structure indicates immediate physical demand is outpacing supply, a condition rarely sustained in normal markets.

Analysts have observed futures contracts rolling back from March to January and from February to January. This unusual pattern suggests long holders are unwilling to wait for later delivery dates.

In January alone, 9,608 contracts representing 48 million ounces have been issued for physical delivery—nearly 45% of the current registered inventory.

Solar Industry Feels the Pinch

The supply squeeze is compounded by relentless industrial demand. Silver now accounts for a record 29% of total solar panel production costs, up from 14% last year and just 3.4% in 2023.

This surge has made silver the single largest cost component in photovoltaic manufacturing, exceeding aluminum, glass, and silicon. Major Chinese manufacturers, including Trina Solar and Jinko Solar, have warned investors of expected net losses in 2025 and 2026.

In response, Longi Green Energy announced it will begin mass production of copper-based solar cells in the second quarter of 2026. However, industry analysts note that such substitution efforts typically take years to scale, leaving near-term demand dynamics firmly tilted toward physical silver.

Gold Remains Stable by Comparison

In contrast, gold shows no signs of similar stress. COMEX gold warehouse stocks total 35.9 million ounces, of which 18.8 million are registered. Against an open interest of 528,004 contracts (52.8 million ounces), the coverage ratio stands at 35.7%—more than double that of silver.

Gold futures remain in contango, the normal market structure where futures trade above spot prices. Daily inventory movements have been minimal.

Outlook

The structural deficit in the silver market—now in its fifth consecutive year according to the Silver Institute—continues to draw down above-ground stockpiles. With lease rates elevated and physical premiums widening across global markets, the conditions for further price appreciation remain in place.

However, traders should note that a market this stretched is also vulnerable to sharp corrections if profit-taking accelerates or exchanges intervene with position limits or margin hikes.