China exported a record 162 million ounces of silver last year while importing almost none, as a tax wedge keeps Shanghai prices above London and New York without pulling bullion east. Silver was $66.10 an ounce on 9 September, up 4% over the past month and down 7.3% year to date; it is also about 46% below the $121.58 intraday high set on 29 January. At end-August the Western reference was $66.44, versus $75.16 on the Shanghai Gold Exchange, a premium of $8.72 an ounce; Indian domestic prices sit behind a 15% import duty. In China, importing refined bullion for domestic sale faces 13% VAT, while importing concentrate and re-exporting refined bars can avoid that charge, supporting a premium that was described as 13.12% yet remaining below an estimated 15% to 20% all-in import hurdle once licensing, freight and insurance are added.
Flows and stocks better explain the paradox. Official bullion imports halved in 2025 to 8 Moz, but adjusted “genuine” imports fell 2% to 7.6 Moz, versus exports of 162 Moz, or roughly one-to-twenty. Combined Shanghai Gold Exchange and SHFE holdings fell 37.3 Moz during 2025 to 47.1 Moz, a ten-year low, with outflows cited as a driver. India tightened separately: duties rose from 6% to 15% on 13 May and 99%+ bars became restricted on 17 May, after which May imports were 46.8 tonnes versus 534.3 tonnes a year earlier, down 91.2% (15.67 Moz). August saw 89.81 tonnes via the India International Bullion Exchange against about 400 tonnes of approved licences, while year-to-date imports ran 16% below last year; an exchange gap of 14.51% was set against an 18.45% compounded tax floor, and a mid-August domestic premium was cited at roughly $4 an ounce.
Volatility in Silver Derivatives and Arbitrage Risks
We face a highly volatile window for silver derivatives in the coming weeks, especially with the Federal Reserve’s interest rate decision looming on September 16. The metal has recently stabilized near $66.10, but upcoming consumer price data will likely trigger sharp short-term fluctuations. We suggest traders utilize near-term option straddles to capture these macro-driven price swings without picking a directional bet too early.
We strongly advise against trying to arbitrage the massive $8.72 premium in Shanghai by going long in London and short in China. This price gap is kept open by China’s strict 13% import tax structure rather than a simple logistical delay. Because import costs run up to 20% above global spot prices, this premium is actually self-preserving and cannot be easily traded away.
Physical Tightness and Strategic Option Positioning
Instead, we should focus on the steady drainage of physical metal, as combined Shanghai exchange holdings have plummeted to a ten-year low. This tight domestic supply, alongside India’s deferred demand from restricted import licenses, means physical delivery bottlenecks are quietly building. We recommend buying longer-dated call options to position for sudden localized supply squeezes later this year.
Real-world data supports this tight outlook, with global silver supply heading into its fifth consecutive year of structural deficit. This ongoing shortfall is heavily driven by industrial demand, particularly from green energy and solar panel manufacturing which has expanded rapidly over the last year. Using any post-Fed price dips to establish long-term bull call spreads will allow us to leverage these strong physical fundamentals safely.
