Silver inventories have fallen sharply, with physical demand challenging Western pricing benchmarks?
2026-02-13 00:58:16
The large-scale outflow of silver from Western vaults signals a structural shift in the global silver market, with physical demand beginning to dominate the pricing mechanism that was previously centered on paper transactions. 
Official inventory data released by the COMEX (Commodity Exchange) on February 11, 2026, showed that registered silver inventory decreased by 3,256,882 ounces in a single day, with total inventory falling below the 100 million ounce mark to 98,138,005 ounces. At the same time, physical outflows of eligible deliverable silver exceeded 4.7 million ounces in a single day, meaning that the net outflow of silver from the entire trading system reached 4.7 million ounces within 24 hours.
David Morgan, publisher of the Morgan Report, stated that the aforementioned inventory changes indicate that the global silver market's distribution system is experiencing severe, localized pressure. "Regardless of current paper prices, the physical market has taken control," Morgan stated bluntly.
This market divergence is most evident in the persistent premium of the Shanghai silver benchmark price—currently, the Shanghai silver benchmark price is about $10 higher than the Western spot price. Logically, arbitrage trading should narrow this price gap, but Morgan Stanley points out that capital controls and logistical issues are the main bottlenecks hindering smooth arbitrage in the global silver market.
“Logically, as long as someone is willing to pay a price higher than the New York benchmark price, silver should be shipped to China,” Morgan said. “But the price difference has not narrowed... there must be something unusual about this.”
Morgan believes that the root cause of this market tension lies in the different positioning of major global exchanges: COMEX is essentially a derivatives trading market, while the Shanghai market is increasingly dominated by industrial users who need silver for production.
“While the Shanghai Futures Market is primarily focused on futures trading, it is not as highly financialized as the London or New York markets. This means that a large amount of silver in the exchange’s inventory will eventually be withdrawn by investors or industrial enterprises for investment or production,” Morgan explained.
It's worth noting that the Chicago Mercantile Exchange Group (CME) recently adjusted its margin requirements, now charging a percentage of the notional value—meaning that transaction costs will automatically increase when silver prices rise. Morgan Stanley believes this mechanism will naturally curb speculative price increases, weed out highly leveraged traders, and drive the market towards a purely cash-based trading model.
“The higher the margin ratio, the more it will force the market to shift towards pure cash trading,” Morgan added.
Demand from Eastern markets remains the core driver of the decline in silver inventories. Data shows that in the past two months, the Indian market has increased its holdings of silver in exchange-traded funds (ETFs) by 40 million ounces. Furthermore, the Shanghai Futures Exchange will implement stricter hedging quota management starting March 1st, requiring institutional holders to provide supporting documentation related to their physical transactions in order to obtain the corresponding position quota.
Morgan believes that, considering all the factors mentioned above, the global silver market has entered its final stage.
"I believe that gold and silver prices are likely to reach historical highs within the next one to two years," Morgan said. Historically, 90% of the gains in a bull market tend to occur in the last 10% of the bull market cycle.
While the current market focus is on silver, Morgan Stanley also specifically points out that platinum is currently at a historically low value – its price ratio to silver has fallen to a 25-year low. He suggests that investors seeking stability should prioritize physical precious metals as a "safety net" against overall systemic volatility.
“Of course, there’s no need to over-allocate,” Morgan said. “It’s a reasonable cost to gain stability and security—you know, these physical assets can protect you in the event of major market turmoil.”
Official inventory data released by the COMEX (Commodity Exchange) on February 11, 2026, showed that registered silver inventory decreased by 3,256,882 ounces in a single day, with total inventory falling below the 100 million ounce mark to 98,138,005 ounces. At the same time, physical outflows of eligible deliverable silver exceeded 4.7 million ounces in a single day, meaning that the net outflow of silver from the entire trading system reached 4.7 million ounces within 24 hours.
David Morgan, publisher of the Morgan Report, stated that the aforementioned inventory changes indicate that the global silver market's distribution system is experiencing severe, localized pressure. "Regardless of current paper prices, the physical market has taken control," Morgan stated bluntly.
This market divergence is most evident in the persistent premium of the Shanghai silver benchmark price—currently, the Shanghai silver benchmark price is about $10 higher than the Western spot price. Logically, arbitrage trading should narrow this price gap, but Morgan Stanley points out that capital controls and logistical issues are the main bottlenecks hindering smooth arbitrage in the global silver market.
“Logically, as long as someone is willing to pay a price higher than the New York benchmark price, silver should be shipped to China,” Morgan said. “But the price difference has not narrowed... there must be something unusual about this.”
Morgan believes that the root cause of this market tension lies in the different positioning of major global exchanges: COMEX is essentially a derivatives trading market, while the Shanghai market is increasingly dominated by industrial users who need silver for production.
“While the Shanghai Futures Market is primarily focused on futures trading, it is not as highly financialized as the London or New York markets. This means that a large amount of silver in the exchange’s inventory will eventually be withdrawn by investors or industrial enterprises for investment or production,” Morgan explained.
It's worth noting that the Chicago Mercantile Exchange Group (CME) recently adjusted its margin requirements, now charging a percentage of the notional value—meaning that transaction costs will automatically increase when silver prices rise. Morgan Stanley believes this mechanism will naturally curb speculative price increases, weed out highly leveraged traders, and drive the market towards a purely cash-based trading model.
“The higher the margin ratio, the more it will force the market to shift towards pure cash trading,” Morgan added.
Demand from Eastern markets remains the core driver of the decline in silver inventories. Data shows that in the past two months, the Indian market has increased its holdings of silver in exchange-traded funds (ETFs) by 40 million ounces. Furthermore, the Shanghai Futures Exchange will implement stricter hedging quota management starting March 1st, requiring institutional holders to provide supporting documentation related to their physical transactions in order to obtain the corresponding position quota.
Morgan believes that, considering all the factors mentioned above, the global silver market has entered its final stage.
"I believe that gold and silver prices are likely to reach historical highs within the next one to two years," Morgan said. Historically, 90% of the gains in a bull market tend to occur in the last 10% of the bull market cycle.
While the current market focus is on silver, Morgan Stanley also specifically points out that platinum is currently at a historically low value – its price ratio to silver has fallen to a 25-year low. He suggests that investors seeking stability should prioritize physical precious metals as a "safety net" against overall systemic volatility.
“Of course, there’s no need to over-allocate,” Morgan said. “It’s a reasonable cost to gain stability and security—you know, these physical assets can protect you in the event of major market turmoil.”
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