Silver has delivered exceptional returns, with prices surging over 160% in 2025 as COMEX crossed $75.00 per ounce and domestic rates exceeded ₹2.30 lakh per kilogram. According to Motilal Oswal Financial Services Ltd, this rally represents a structural shift in the global silver market, driven by tangible physical market dynamics rather than speculative euphoria. The precious metal's journey represents one of the most significant wealth creation stories, with multiple structural factors creating visible imbalances in the physical market.

Supply-Demand Fundamentals Drive Structural Rally

The underlying driver appears to be structural deficits rather than speculative positioning. Motilal Oswal's report "Silver Unchained!!!" highlights that 2025 marks the fifth consecutive year of physical deficit in the market, with mine supply unable to meet combined demand. The global silver market continues to face projected shortfalls exceeding 100 million ounces.

This deficit is difficult to bridge quickly as most silver is produced as a by-product of copper, zinc, and lead mining, which limits supply flexibility. Ore grades are reportedly declining, and new mines typically take over a decade to become operational.

Inventory Drawdowns Signal Physical Tightness

COMEX and Shanghai silver inventories showed persistent drawdowns throughout the year, with registered stocks falling sharply while Shanghai physical inventories reached decade-low levels. This sustained shortage led to a widening premium of $5.00-$8.00 for Shanghai spot prices over COMEX futures, highlighting stress on traditional arbitrage mechanisms.

Late in 2025, COMEX experienced a "vault drain crisis," with over 60% of registered silver claimed for delivery within four trading days, underscoring the growing gap between outstanding futures contracts and physical availability. The disconnect between paper pricing and deliverable metal has become a key factor driving prices.

China Export Controls Intensify Supply Concerns

China's role in the global silver supply chain has intensified market tightness. As one of the largest refiners and net importers of silver, Chinese inventories saw steady declines. Proposed export licensing requirements from January 2026 are expected to further restrict global metal flows, adding another layer of supply-side concern to the market.

Industrial Demand Provides Structural Support

Silver continues to see strong industrial demand, especially in solar panel manufacturing, electric vehicles, electronics, and medical applications. Estimates suggest that 50-60% of silver demand now stems from industrial use, with applications spanning clean energy projects, solar installations, data centers, and electrification initiatives.

Motilal Oswal's Investment Strategy and Outlook

Navneet Damani, Head of Research – Commodities at Motilal Oswal, said, "Silver's rally in 2025 is shaped by real metal scarcity. Physical deficits, policy-driven supply constraints, and concentrated inventories are increasingly dictating prices, marking a structural change in global silver trading."

Manav Modi, Commodities Analyst at Motilal Oswal, added, "Persistent inventory drawdowns across key hubs and weakening arbitrage between Shanghai and COMEX have exposed the limited availability of deliverable silver. The sustained premium in physical markets reflects genuine supply tightness rather than temporary pricing inefficiencies."

Motilal Oswal maintains a buy-on-dips approach, projecting silver to reach $77.00 on COMEX and ₹2.46 lakh domestically, with further revisions dependent on evolving supply-demand dynamics and policy developments.

Gold discounts in India have surged to their highest levels in more than six months as a sustained price rally significantly dampened retail buying interest. The development comes as domestic gold prices hit unprecedented levels, with dealers struggling to attract buyers despite the ongoing festive season.

Record Price Levels Deter Indian Buyers

Domestic gold prices reached an all-time high of ₹139,286 ($1,550.34) per 10 grams on Friday, tracking the rally in international spot gold rates. The surge follows spot gold's climb to a record $4,530.60 per ounce, driven by speculative buying, momentum-driven investments, expectations of additional US rate cuts, and rising geopolitical tensions.

A Kolkata-based jeweller explained the market sentiment: "People are in a festive mood and travelling, so they are not interested in making purchases at these record-high price levels."

Discount Structure Reflects Weak Demand

The impact on retail demand is clearly visible in the discount structure offered by Indian dealers:

These discounts are calculated over official domestic prices and include the mandatory 6% import and 3% sales levies. A Mumbai-based bullion dealer with a private bank noted: "The slowdown in demand is deepening as prices continue to rise. Demand is likely to remain muted over the next few weeks unless there is a significant correction in prices."

Chinese Market Shows Contrasting Trends

In contrast to India's widening discounts, China's bullion market experienced a sharp narrowing of discounts despite similarly muted retail demand. Chinese gold traded at discounts of $15 to $30 per ounce to the global benchmark spot price, a significant improvement from last week's discounts of up to $64 per ounce—the deepest in more than five years.

Bernard Sin, regional director for Greater China at MKS PAMP, attributed the discount narrowing to several factors despite weak retail demand:

• Increased speculative buying at record-high prices
• Expectations of US rate cuts
• Constrained supply due to lack of new import quotas from the People's Bank of China
• Support from a firmer yuan

For historical context, Chinese discounts had reached a record high of $87.50 in August 2020 during the COVID-19 pandemic-induced retail demand slump.

Regional Market Dynamics

Across other Asian markets, gold trading patterns varied significantly:

Vergel Villasoto, director at Silver Bullion in Singapore, observed a shift in investor preferences: "The major purchases are made on silver and platinum, not gold. As usual, once we see the run-up in gold, that's when buy orders come in due to 'FOMO'" (fear of missing out).

The current market dynamics highlight the price sensitivity of retail gold demand in India, where traditional buying patterns during festive seasons are being disrupted by record-high price levels. The contrasting trends between Indian and Chinese markets underscore the different factors influencing regional gold trading, from retail sentiment to speculative activity and supply constraints.