Key Takeaways
COMEX July silver futures tumbled as much as 6.3% on Thursday, breaking a five-day winning streak to trade below $84 per ounce as a surprise tariff hike from India and a resurgent U.S. dollar triggered a wave of selling.
"With nearly 6.5 paper claims for every ounce of physical silver, even a modest increase in investors seeking physical delivery could trigger a liquidity squeeze," Vandana Bharti, Research Head – Commodity at SMC Global Securities, said in a recent note regarding inventory levels.
The sharp reversal was driven by a trio of factors, led by India's decision to raise import duties on silver and gold to 15% from 6% in a bid to shore up its foreign exchange reserves. The move threatens to slash demand from one of the world's largest physical silver markets. Compounding the pressure, the U.S. Dollar Index climbed to a two-week high of 98.6, increasing the opportunity cost of holding the non-yielding metal, while traders took profits after a rally that had seen prices surge nearly 17% since last week.
While the sell-off highlights silver's characteristic volatility, it contrasts sharply with a tightening fundamental backdrop. The drop in COMEX registered inventories below 80 million ounces has pushed the physical market closer to what many analysts consider a "stress zone," fueling concerns of a potential supply squeeze long-term.
The plunge on Thursday was a textbook example of a crowded trade unwinding. After silver prices broke above the key $80 level, momentum funds and short-term traders piled in, creating a fragile environment. The rally, which had pushed prices to a two-month high near $90 earlier in the week, left the market vulnerable to a sharp correction once the upward momentum faded.
Macroeconomic headwinds provided the trigger. Stronger-than-expected U.S. retail sales and inflation data have dampened expectations for Federal Reserve interest rate cuts this year. This has supported a stronger dollar and higher Treasury yields, creating a difficult environment for precious metals that offer no yield.
The most significant catalyst for the sell-off was the unexpected news from India. The government's decision to more than double the import tariff on precious metals is a major blow to physical demand expectations. While the move caused a brief spike in local Indian futures prices, the global market reacted to the prospect of sharply lower consumption from a key source of jewelry and investment demand.
In the domestic market, the move sent MCX silver futures tumbling by over ₹13,000 to a low of ₹2,86,805 per kilogram, erasing the previous session's 7% gain that followed the initial tariff announcement.
Despite the day's dramatic price action, the underlying supply situation for silver remains a key focus for long-term investors. According to data from the exchange, registered silver inventories available for delivery against futures contracts have fallen more than 45% since the "Silver Squeeze" of 2021, recently dipping below the 80-million-ounce mark.
Analysts at Choice Broking noted that this decline is a "strong bullish signal," as the tightening supply fuels concerns of a physical shortage. They see the potential for prices to target the $98–$110 range in the longer term, even as short-term volatility persists. The structural deficit, driven by relentless industrial demand from the solar and electric vehicle sectors, suggests that any significant dip in price may be viewed as a buying opportunity by industrial consumers and long-term investors.
This article is for informational purposes only and does not constitute investment advice.
