# Silver Price Discovery - Paper vs Physical Silver has two markets that should align but currently don't. ## Paper Market (Price Discovery) [[COMEX Silver Futures]] drive the silver price. Daily volume $50-100B. Contracts: 5,000 oz each. Settlement: 95%+ cash, not physical. This is where price is discovered. ## Physical Market (Actual Metal) Spot market for immediate delivery (T+2). Daily volume $5-10B. Large bars only. Purpose: industrial use, investment. ## Normal Flow COMEX futures ($70) → Arbitrage → London spot ($70) → Shanghai spot ($70.50) Arbitrage keeps markets aligned. ## Broken Flow (Current) COMEX futures ($72) → ??? → London spot ($72) → Shanghai spot ($84) The [[Shanghai Silver Premium|12% Shanghai premium]] means arbitrage broke. You cannot get physical silver to China even with $12/oz profit available. ## Why Paper Can Diverge Short-Term Futures traders can sell contracts without needing physical delivery. But industrial users need actual metal. They cannot manufacture solar panels with COMEX contracts. When industrial users discover they cannot get physical delivery at current prices, they bid up futures to guarantee supply. Paper forced to converge to physical reality. Current disconnect: [[Silver Lease Rates|8.5% lease rates]] and [[Silver Swap Rates and Forward Curve|-7.9% swap rates]] scream physical scarcity, but paper trades at $72. This gap will close violently. Links: [[Silver MOC]] | [[COMEX Silver Futures]] | [[Silver Arbitrage Breakdown]] --- #silver #firstprinciple #markets