Silver's Historic Run Supercharges ETF Demand As Inventories Run Thin

Silver steadied near $58.50 an ounce in Asian trading on Monday, just below last week's all-time high, as traders braced for a widely expected Federal Reserve rate cut.

The metal has more than doubled this year, outperforming gold's 60% surge by a wide margin. Tightening inventories in London and China, industrial demand, and the lingering aftershocks of a short squeeze strengthened momentum.

One-month lease rates in London remain near 6%, underscoring how scarce physical supply has become. Shanghai stocks are now near their lowest in a decade.

The market’s intensity has also driven retail speculation. Silver's 14-day RSI repeatedly pierced the overbought threshold last week. CME data shows micro futures and options volumes rising as traders position for bigger swings, according to Bloomberg.

Also Read: COMEX ‘Pulled the Plug’? Veteran Broker Warns Silver Shortages Are Global

ETF Inflows Are Amplifying The Supply Crunch?

Against this backdrop, silver-backed ETFs are becoming an unexpected pressure valve. ETFs had their strongest week of inflows since July, adding almost 590 tons of the metal, per Bloomberg.

With investors continuing to pile into physically-backed funds like the iShares Silver Trust (SLV) and abrdn Physical Silver Shares ETF (SIVR) , issuers are being forced to buy more metal at a time when that is unusually expensive. SLV saw inflows worth around $572 million, whereas SIVR saw $69 million in inflows, per data aggregated by VettaFi.

The sheer size of the inflows means ETFs that were meant to passively mirror the market are now reinforcing the tightness. High borrowing costs, thin inventories, and a still-frazzled supply chain hike the risk of tracking pressure ? especially should ETF creation accelerate ahead of the Fed meeting. Leveraged products, such as the ProShares Ultra Silver (AGQ) , can also see heightened volatility in the next few days.

With physical silver harder to come by, some investors are moving into miners. The Global X Silver Miners ETF (SIL) has benefited from renewed interest last week as it offers indirect exposure that doesn’t require vault storage. The fund garnered more than $88 million in inflows last week. For traders worried that ETF sourcing may hit a hitch, mining equities offer a way to ride the rally without depending on the tightening metal market.

The move in the metal signals a flight to hard assets at a moment when rate cuts appear imminent. If the Fed delivers a quarter-point reduction this week as swaps markets expect, silver may get yet another tailwind – and ETF issuers could soon discover that record demand comes with a very real, very shiny logistical problem.

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