Chinese demand for silver has kept the Shanghai import arbitrage window open, supporting international buying linked to profitable import trades. The window has remained open since the period just before the war in Iran.
Recent price gaps on SHFE have drawn inventories back into exchange vaults. This has eased concerns about domestic scarcity as off-exchange stocks move into SHFE warehouses.
CME warehouse stocks have fallen, but inventories still total 345mn oz. Dealer short futures positions are 125mn oz, which could be fully covered by physical metal in the correct jurisdiction, while leaving 220mn oz remaining in CME warehouses.
The market narrative is described as moving towards higher inventory coverage. This is linked to shrinking deficits and a rising global free float.
We continue to see the Shanghai arbitrage window remain open, which has supported silver prices by drawing metal to China. This was a powerful driver last year following the conflict in Iran, and recent data from early March 2026 shows the Shanghai premium holding around 5-7%. However, inventories are now flowing back into SHFE warehouses, suggesting that acute domestic scarcity concerns are easing.
The draws on CME warehouses have been notable, but we must not overstate their impact on the broader market. As of this week, CME registered vaults still hold approximately 320 million ounces, providing more than enough coverage for dealer short positions. This ample supply reinforces the view that a physical squeeze, like the one attempted back in 2021, is highly unlikely in the current environment.
This situation suggests that a cap may be forming on silver’s upside potential in the near term. With plenty of physical metal available to meet contractual obligations, explosive price rallies will be difficult to sustain. Derivative traders should therefore be cautious about chasing upward momentum and consider that price spikes may be opportunities to sell into strength.
Looking back, the market narrative has clearly shifted from what we saw in 2025. Instead of focusing on tight supply, the story is now about rising inventory coverage thanks to smaller deficits and more freely available metal. We see this reflected in recent industrial production data from China, which showed a solid but not spectacular 5.5% year-over-year growth for February, indicating steady rather than runaway demand.
For the coming weeks, strategies that profit from range-bound price action or limited upside appear most prudent. Selling out-of-the-money call options to collect premium could be an effective strategy for those anticipating sideways movement. Alternatively, traders looking for downside protection or speculation might consider buying put spreads, which offer a defined-risk way to position for a potential pullback toward established support levels.
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