What Everyone's Getting Wrong About Silver's 'Shanghai Premium'
Everyone’s screaming about the Shanghai silver premium. Most of them have it completely wrong.
I’ve been watching the madness in Silver develop for weeks, and what I’m seeing is a fundamental misunderstanding of how global commodity markets actually work. Let me break it down.
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What’s Actually Happening
Spot Silver just closed above $80 in Shanghai while its sits around $72 stateside. That’s an $8+ spread, or roughly 11%. FinTwit is calling it proof of a physical shortage. They’re half right, but as usual, they’re missing the bigger picture.
The truth? A huge chunk of that “premium” is structural, not speculative.
The Shanghai premium isn’t just about shortage; it’s about who’s buying.
China treats silver as an industrial metal with 13% VAT baked into exchange prices. When retail speculators and small wholesalers pile in (they can’t reclaim the tax), they push local prices toward that VAT-inclusive floor. The bigger the retail frenzy, the bigger the “premium.”
To the untrained eye this looks like massive institutional/industrial demand, but what you’re actually seeing is small money going all-in.
The Data That Matters
117.7 Million Ounces — The 2025 supply deficit. This is the fifth consecutive year of structural deficits.
820 million ounces — Cumulative deficit from 2021-2025. That’s equivalent to an entire year of global mine output.
187 Million Ounces — ETF inflows in 2025 alone, up 18% YoY. Investors are piling in.
113.27 Million Ounces — COMEX registered inventory, down **70% from the 2020 peak.
33.45 Million Ounces withdrawn in just 7 days — that’s 26% of registered inventory gone in a single week.
The physical market isn’t just tight — it’s fracturing. But the Shanghai premium amplifies that story through a tax mechanism that most traders don’t understand.
Gold vs. Silver
Here’s what separates these markets:
Gold has a floor mechanism.
Central banks have been net buyers for 15+ consecutive years, with 2024 seeing 1,044.6 tonnes of accumulation. When prices dip, sovereigns step in. That creates support.
Silver doesn’t have that backstop.
Silver’s floor comes from industrial demand—solar panels, EVs, electronics, AI infrastructure. That demand is real and growing, but it’s cyclical and sensitive to economic conditions.
The ETF dynamic is also different.
GLD has ~50% institutional ownership. SLV? Just 26%. That’s why SLV saw record volume recently but outflows, while GLD attracted inflows on its rally.
Institutions treat gold as a store of value. They treat silver as a trade.
The China Factor
On January 1, 2026, China implemented new export licensing requirements for silver. This isn’t exactly a ban; but it’s close. Only government-approved exporters can ship silver abroad, and the qualification bar is high: annual production over 80 tonnes and consistent export history from 2022-2024.
Why does this matter? China processes massive amounts of silver domestically for solar panels and electronics. These rules keep that metal inside China’s borders, tightening global supply.
Meanwhile, the 13% VAT creates a two-tier market:
- Banks and large refiners use “immediate levy and refund” policies, meaning their effective tax rate is near zero.
- Industrial buyers can often offset a portion.
- Retail and small wholesalers pay the full 13% with no reclaim possible
When retail piles in, they ‘are’ the premium. That’s what’s been happening.
The Exchange Fragmentation Issue
One more thing most people miss: commodities trade globally across fragmented exchanges.
The major silver venues:
- COMEX (US/international futures)
- LBMA (London OTC, arguably most important)
- SHFE/SGE (China, with VAT baked in)
- MCX (India, smaller but growing)
Each has different contract specs, storage costs, and regulatory frameworks. Arbitrage ‘should’ keep prices aligned, but when China restricts exports and imposes VAT, that arbitrage breaks down.
In October 2025, London’s silver market literally ‘seized up’ for 1.5 hours due to lack of liquidity. The LBMA had to source 54 million ounces internationally to fill the gap. That’s not a healthy market.
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The Bottom Line
The structural Silver bull case is real: 820 Million Ounces of cumulative deficits since 2021, China hoarding supply, COMEX vaults down 70% from peak, 187 Million Ounces of ETF inflows in 2025 alone.
But the Shanghai premium isn’t pure shortage signal—it’s partly a tax artifact amplified by retail speculation. The more small players pile in, the wider that spread gets.
Does that mean the Silver price won’t be much higher years from now? Not necessarily. But it does mean the “smart money” sees something different than FinTwit’s “squeeze” narrative.
Understand the structure. Don’t chase headlines. Respect the volatility. Size accordingly. Zoom out to the bigger picture.
That’s the whisper for this week.
If this helped you see the market differently, please forward this to one trader friend who’d appreciate it.
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See you next week,
Elliott.
Ex-Market Maker | Trading Floor Whispers