The current silver sell-off appears to be driven by a combination of both mechanical and structural factors.

Mechanical Sell-off Factors

The annual Bloomberg Commodity Index (BCOM) rebalancing, occurring from January 9-15, is a significant mechanical driver.

TD Securities estimates that approximately $7.7 billion of silver selling could occur over two weeks due to this rebalancing, representing about 13% of total open interest on COMEX. This programmatic selling contributes to downward pressure on prices.

Structural Market Factors

Tight inventories are a key structural factor. Goldman Sachs has warned that tight London inventories could lead to extreme price swings.

Reports indicate a historic supply crunch in the London market and Chinese inventories dropping to their lowest levels in over a decade.

The global silver market is projected to be in its seventh consecutive year of deficit in 2025, with a cumulative shortfall of nearly 800 million ounces since 2021, as mine output declines.

Industrial demand for silver is surging from sectors like solar panels, electric vehicles (EVs), and advanced electronics. This strong demand against limited supply contributes to a structural deficit.

The market has experienced "backwardation," where the spot price is higher than the futures price, indicating acute physical shortages.

Buy-the-Dip Opportunity

Given the underlying structural deficit and tight inventories, a forced sell-off due to mechanical rebalancing could create a buying opportunity.

One expert maintains a bullish outlook on silver prices and suggests that accumulating silver during corrections has been optimal, expecting this trend to continue.

While aggressive rallies often experience corrections, silver's history of high volatility could lead to significant two-way price action, supporting strategies during downturns.

Lower interest rates typically support non-yielding assets like silver.