The current silver weakness should be viewed primarily through the lens of flow mechanics, not a deterioration in fundamentals.

Is the sell-off mechanical or structural?

It is largely mechanical.

The Bloomberg Commodity Index annual rebalancing forces passive funds to reduce silver exposure after its strong prior-year performance. The estimated USD 7.7 billion of selling flagged by TD Securities represents mandated portfolio adjustment, not discretionary bearish positioning. Such flows are price-insensitive and time-bound, typically concentrated within the rebalance window.

There is little evidence of a structural demand breakdown. Industrial demand tied to electrification, solar, and AI-related power infrastructure remains intact, while mine supply growth is constrained.

Role of inventories and volatility

Here lies the asymmetry.

Goldman Sachs highlights tight London inventories, which materially limit the market’s ability to absorb large paper selling without price dislocations. When liquidity thins, forced futures selling can push prices below fundamental equilibrium, amplifying short-term volatility.

The COMEX open interest impact underscores this risk. A forced reduction equal to roughly 13% of open interest is significant, especially in a market already running lean on physical buffers.

Does this create a buy-the-dip opportunity?

Potentially, yes, but with discipline.

If prices weaken solely due to rebalancing flows while inventories remain tight, the sell-off is likely temporary rather than trend-defining. Such episodes have historically offered attractive entry points for medium-term holders, once forced selling exhausts itself.

That said, timing matters. Knife-catching during the rebalancing window carries risk. The higher-probability setup emerges after flows subside, when price stabilisation confirms that fundamentals are reasserting control.

Bottom line:

This is a mechanically driven drawdown interacting with structurally tight supply. If inventory stress persists, forced selling may indeed manufacture a buy-the-dip opportunity, but patience and confirmation are essential.