Goldman Sachs: Thin Inventories Fuel Extreme Silver Volatility

Persistently thin silver inventories mean prices are likely to remain highly sensitive to market flows, creating significant upside potential and downside risk, according to new analysis from Goldman Sachs.

Analysts Lina Thomas and Daan Struyven noted that depleted stockpiles have set the stage for market squeezes. "Thinner inventories have created conditions for squeezes, where rallies accelerate as investor flows absorb remaining metal in the London vaults and reverse sharply when tightness eases," they wrote in a Wednesday note.

However, the analysts clarified that recent price turbulence is not a symptom of a global silver shortage. Instead, it stems from localized supply bottlenecks that are distorting the market.

The London Squeeze Effect

A key driver of this volatility is the unusually low level of silver supplies in London, where the global benchmark price is determined. This situation arose after a large volume of the metal was moved into U.S. vaults last year due to concerns that the Trump administration might impose trade tariffs.

While silver’s landmark 2025 rally was fueled by fundamental investor demand—driven by safe-haven buying, expectations of Fed rate cuts, and asset diversification—the squeeze in London is dramatically amplifying the impact of these capital flows.

Price Sensitivity Has Surged

Under normal market conditions, a weekly net demand of 1,000 metric tons would typically push silver prices up by about 2%. In the current environment, Goldman Sachs estimates that price sensitivity has surged to approximately 7% for the same volume.

The analysts warned that these extreme price movements are likely to persist, creating sharp swings in both directions.

The Bull Case: Room for More Investor Demand

Even with silver at all-time highs, Goldman Sachs suggests that investor demand may not be overstretched. They point out that holdings in silver ETFs remain below their 2021 peak, indicating that further inflows could be triggered by rate cuts and continued investor diversification.

The Bear Case: Policy Uncertainty Holds the Key

On the other hand, a significant price pullback could occur if trade policies are clarified, allowing silver to flow from U.S. vaults back to London. However, any lingering policy uncertainty will likely keep the metal on American soil.

Goldman noted a similar pattern with gold. Much of the gold that moved into New York COMEX vaults remained there even after Washington confirmed the metal would be exempt from tariffs. "If silver follows the same pattern, most silver may remain in New York COMEX vaults and extreme price action could persist even after a definitive statement on US silver tariffs," Thomas and Struyven wrote.

China's New Rules Add Another Layer of Risk

Further complicating the global picture are China's new 2026 export restrictions, which now require official approval for outbound silver shipments. Goldman Sachs believes this policy could fragment the global silver market, ultimately reducing liquidity and amplifying price swings.

"Disruption risk may prompt participants to secure their own stockpiles rather than share buffers globally," the analysts explained. This could transform the market from an integrated global system into a fragmented one. "This shift from a pooled global system to isolated regional inventories would create an inefficient structure — transforming a smooth, integrated market into one prone to sharp, localized price swings."