On the surface, silver prices have recently experienced a significant downturn, raising concerns among investors and market spectators alike. Having reached highs above $114 per ounce in early 2026, silver tumbled 31% to trade near $80, prompting headlines warning of overvaluation and speculative excess. Yet, data emerging from deeper within the market, specifically from the COMEX exchange and physical inventory shifts, tells a very different story: beneath the volatility lies a tightening physical silver market that could lay the foundation for the next leg of a long-term bull cycle.
In the weeks leading up to February 2026, the silver market was subject to significant price corrections, a phenomenon partially driven by CME Group’s decision to raise margin requirements for 5000-ounce silver futures contracts to 18%, up from 15%. These margin hikes, designed to temper speculation and reduce systemic risk, triggered widespread unwinding of leveraged positions. As a result, volatility increased, compounding the price decline.
Industrial and speculative players alike were forced to liquidate, but the underlying story told by physical inventory data suggests a much different dynamic at play. COMEX registered silver inventories, i.e., the metal available for immediate delivery, have steadily declined, falling below the psychological threshold of 100 million ounces to just 93 million, and even further to 98.1 million according to more recent data from February 11. Withdrawal patterns have also been significant, with over 4.7 million ounces removed from the eligible category of metals that meet delivery standards but are not currently pledged for delivery within 24 hours. The underlying implication? The physical market is experiencing intense pressure, driven by genuine demand from industrial users and long-term holders rather than mere speculative interest.
Another crucial development involves the narrowing spread between March and May silver futures contracts. While the market remains in contango, where prices for future delivery are higher than spot, the differential has tightened to the point that it barely covers storage costs and interest rates. Typically, this spread allows traders to profit from storing silver and selling it months later. When that profit vanishes, it signals a distinct shift in buyer behavior: investors want the metal now.
Adding to the tension, clearing banks, a crucial pillar of the derivatives clearing and settlement system, are reportedly under immense pressure to meet delivery obligations. Instead of promptly delivering metal, these institutions are opting to roll over contracts where possible. However, pressure from market participants and hedgers is forcing theoretical settlement dates to occur much earlier than usual, potentially as early as February 25. These signs suggest a strong undercurrent of physical demand that operates independently of electronic trading screens and price charts.
Meanwhile, silver pricing in the East tells its own story. The Shanghai silver benchmark is currently fixing at around $10 above Western spot prices, a rare and sustained premium that typically would incentivize arbitrage. However, capital controls, logistical constraints, and differences in exchange structures have prevented this spread from narrowing.
Unlike COMEX, where most trades are speculative and physical delivery is rare, the Shanghai Futures Exchange is more grounded in industrial and physical realities. There, silver is often processed into raw material for electronics, solar panels, and other technologies, depleting exchange inventories over time. At the same time, India added over 40 million ounces of silver to exchange-traded funds in just two months, exacerbating the depletion of global inventories.
The tightening of global physical supply, particularly through systematic vault withdrawals in the U.S. and persistently high premiums in Asia, signals a fundamental divergence between paper-based price signals and the reality of physical demand.
Despite these bullish undercurrents, traditional market commentators remain wary. Hank Smith, CIO of Haverford Trust, recently sounded caution, describing precious metals as “speculations” rather than investments. In his view, commodities such as silver lack intrinsic income-generating properties, yielding returns only through price appreciation, which he believes is vulnerable to momentum-fueled rallies and sharp reversals.
While this traditional finance perspective deserves recognition, particularly in portfolio risk management, it may underappreciate the systemic role of physical precious metals. Advocates such as David Morgan, publisher of The Morgan Report, argue that physical silver acts as insurance within modern finance, a stabilizing force during periods of stress.
Morgan emphasizes that most of silver’s bull market price gains typically occur during the last 10% of the move, suggesting that investors dismissing silver’s potential may miss its most explosive phase. He also draws attention to platinum, which currently sits at a 25-year low relative to silver, offering a contrarian opportunity for diversification within the precious metals space.
Further strengthening the trend toward physical market dominance are forthcoming regulatory changes. The Shanghai Stock Exchange plans to implement stricter hedging rules, effective March 1, 2026. Participants must now demonstrate a tangible connection to the physical use of industrial silver to justify large positions. This move is likely to elevate the influence of real-world supply and demand dynamics over speculative price-setting, in sharp contrast to Western derivative-focused markets.
Adding to that shift, the CME Group’s revised margin structure now calculated as a percentage of notional value, forces leveraged traders to post more collateral as prices rise. This change can act as a natural moderator of speculative spikes, prompting shifts toward more cash-backed trades and long-term holding.
While volatility and speculative drawdowns dominate headlines, beneath the surface, silver’s fundamentals tell a quietly bullish narrative. The evaporation of registered inventory, narrowing futures spreads, delivery congestion, and persistent Eastern premiums all indicate a physical market under pressure.
If David Morgan’s analysis holds, the surge in global demand, driven by industrial users and strategic allocations by Eastern buyers, may outlast the short-term selloffs and eventually catalyze another phase of the bull cycle. Analysts continue to project silver moving back toward $88–$100 per ounce, with long-term appreciation potential ranging from 20%–35% depending on monetary policy shifts and sustained investor demand.
The silver market in 2026 is a study in contrasts. While the price on electronic boards reflects chaos and correction, the behavior of those demanding physical metal suggests confidence and conviction. Investors would do well to look beyond the paper price and consider the structural shifts underway, especially as the global economy braces for uncertainty amid shifting rate expectations, currency risks, and systemic volatility.