Here is some food for thought regarding Physical vs paper silver.
As of early 2026, the paper-to-physical ratio is estimated at
378:1, meaning there are 378 paper claims for every one physical ounce of silver in registered vaults.
There's only -1% demand for physical silver in any given month
Recent Market Stress (Late 2025 – Early 2026)
While the long-term average is below 1%, recent months have seen significantly heightened delivery demands that have strained the exchange system:
- Surge in Demand: In December 2025, delivery requests reached approximately 65 million ounces (representing 12,946 contracts).
- Delivery Shortfalls: During this period, the COMEX reportedly struggled to fulfill physical requests. In one specific instance on November 30, a single block request for 36.65 million ounces resulted in the exchange being able to deliver only 2.57 million ounces initially, forcing the rest into cash settlements at a high premium.
- Settlement Shift: By the end of 2025, approximately 95% of delivery requests were reportedly settled in cash due to the physical scarcity.
Now let's play the what if that was to go to 2% demand....
1. Massive Inventory Drain
In December 2025, just over 1% demand for physical delivery—roughly
65 million ounces—pushed the COMEX to its limit, leading to reports that the exchange struggled to fulfill orders. Doubling this to 2% would require approximately
130 million ounces, potentially exhausting nearly the entire "Registered" (available for delivery) silver supply in a single month.
2. Punitive Margin Hikes
To prevent a total collapse, the CME Group would likely use "margin hikes" as a blunt instrument to force paper traders out of the market. In late December 2025, margins were already raised twice in one week, reaching
$32,500 per contract. A move toward 2% delivery demand would likely see margins spike even higher—potentially to
$50,000 or more—to intentionally trigger a "liquidation cascade" and reduce the number of people who can afford to hold contracts.
3. Deep Market Backwardation
A 2% demand for delivery would signal absolute desperation for immediate physical metal. This would drive the market into
deep backwardation, where the price for immediate delivery (spot) is significantly higher than future delivery prices. As of early January 2026, physical silver already costs roughly
7% more than delivery at the end of the year.
4. Direct "Off-Take" Migration
Industrial users, such as solar panel and AI hardware manufacturers, would likely stop relying on the futures market for their supply. Instead, they would pivot toward direct
"off-take" agreements with mining companies to guarantee they receive physical bars, bypassing the volatile and potentially unreliable COMEX pricing system.
5. Systemic Risk for Banks
A 2% delivery requirement would put immense pressure on bullion banks that hold large net short positions—recently reported at
212 million ounces collectively. If forced to deliver physical metal they do not have, these banks would face multi-billion dollar losses, potentially requiring further emergency liquidity support from central banks to prevent a broader financial crisis.
