As global silver prices rocket to record highs, India’s Multi Commodity Exchange (MCX) finds itself trapped in a dangerous divergence — where the spot market screams scarcity but futures prices refuse to listen. Beneath this gap may lie the seeds of India’s next commodities crisis.
A White Metal Gone Rogue
Silver — the humble cousin of gold — has become the year’s wildest asset. In 2025 alone, global prices have surged more than 50%, racing past $48 an ounce and outpacing every major metal. In India, 999-purity silver now commands an unprecedented ₹1.62 lakh per kilogram, per Indian Bullion and Jewellers Association (IBJA) data — the highest in history.
Bullion traders in Mumbai, Delhi, Chennai and Hyderabad say demand is frenetic. “We’re quoting at ₹1.70 lakh and still can’t deliver,” says one south-based dealer. Shelves are empty; mints are running overtime. Yet — in a bizarre twist — MCX futures continue to languish, trading nearly ₹15,000–₹20,000 per kg below the street price.
This isn’t a small kink. It’s a gaping hole in India’s precious metals market — and it’s getting wider.
The Cracks Beneath the Shine
The futures market, meant to mirror spot prices, is supposed to converge as expiry nears. But in recent weeks, MCX December silver futures (₹1.46–₹1.47 lakh/kg) have stubbornly lagged behind spot rates hovering at ₹1.61–₹1.71 lakh/kg. That 8–15 percent discount is the kind of distortion that keeps risk desks awake at night.
“This is not normal backwardation — this is market stress,” says a commodities strategist at a foreign brokerage, requesting anonymity. “It’s a signal that someone, somewhere, can’t deliver metal.”
A Market Starved of Silver
Globally, silver inventories are collapsing. Borrowing costs for the metal in London have spiked to multi-decade highs. ETFs and industrial consumers — from solar manufacturers to electronics firms — have swallowed available stock. Refiners in Canada, Australia, and even Vietnam are reporting backlogs.
India, the world’s largest silver consumer, is feeling the heat most acutely. Import delays, festival-season demand, and a weak rupee have turned the physical market into a feeding frenzy. So acute is the shortage that India’s biggest fund houses — Kotak Mahindra, UTI, and SBI — have suspended fresh subscriptions to their silver ETFs, citing “market conditions” and “supply constraints.”
In other words: there isn’t enough silver to buy, even for funds that promise it.
Inside the MCX Disconnect
MCX’s own ecosystem now looks alarmingly fragile.
Traders point out that the exchange’s vault stocks are thinning, even as open interest balloons. “If even a fraction of contract holders demanded delivery, there isn’t enough metal,” says a senior bullion trader who deals in MCX silver.
Here’s the core flaw:
MCX silver contracts are compulsory delivery, but delivery is at the seller’s option. The Due Date Rate (DDR) — the final settlement price — is based on an average of spot polls over three days. The system assumes that futures and spot prices will naturally converge. But in 2025, that assumption is breaking down. With the spot–futures gap refusing to close, the exchange could face what insiders call a “delivery crunch.” If sellers can’t produce silver on expiry — and buyers refuse to roll over — defaults could ripple through the system.
Echoes of a Past Meltdown
Veterans haven’t forgotten 2013. That year, Rajesh Exports, India’s largest gold hedger, defaulted on its MCX gold positions after failing to meet margin calls. The exchange squared off its trades, triggering losses of ₹50 crore and a credibility crisis. Twelve years later, the same fault lines are reappearing — this time in silver.
Back then, the system buckled under margin pressure. Today, the danger lies in physical scarcity. MCX has not disclosed whether short-sellers hold enough metal in vaults to cover their obligations. Nor has SEBI issued any guidance on delivery verification.
“MCX is banking on history — that only 1% of open interest converts to delivery,” says a market watcher. “But this is not a normal year. What happens if 10% demand it?”
The Arbitrage That Nobody Dares Touch
On paper, the math is irresistible. Sell physical silver at ₹1.70 lakh/kg, buy MCX futures at ₹1.46 lakh/kg, take delivery on December 5 — and pocket ₹24,000/kg in profit. In practice, no one dares.
“Who will trust delivery in this environment?” asks a trader at a major bullion house. “Even if you have cash and contracts, you can’t be sure you’ll get the metal.”
The fear of delivery failure — not greed — is now driving the market.
A Deafening Silence from Regulators
Despite growing dislocation, neither SEBI nor MCX has issued a public statement on risk containment. There is no evidence of stress-testing, no confirmation that short-sellers are backed by metal, and no emergency margin adjustments. The contrast with mutual funds is stark: ETFs have frozen fresh flows to avoid risk, but the exchange remains business as usual.
“This silence is not reassuring,” warns a veteran commodities lawyer. “If the exchange isn’t verifying inventory, it’s inviting a crisis.”
The Warning Flare
No one is predicting an outright collapse — yet. Exchanges do maintain default funds and margin buffers. But these are designed for volatility, not for a physical shortage that could upend delivery obligations.
For now, silver’s dazzling rally is masking structural stress. But if the gap persists, the MCX may soon have to choose between forcing convergence or facing defaults. Either way, investors should beware: the silver market’s sheen could hide a structural fault line.
Bottom Line:
- Spot vs Futures: Verified 8–15 percent divergence on MCX as of mid-October 2025.
- ETF Freeze: Kotak, UTI, SBI suspend silver ETF inflows — confirmed by Reuters and Economic Times.
- Risk: Low vault inventory vs open interest, potential for delivery squeeze.
- Precedent: 2013 Rajesh Exports default shows cracks in MCX’s risk management.
- Regulatory Inertia: SEBI and MCX yet to publicly acknowledge or address systemic risk.
“Markets don’t crash when prices rise — they crash when confidence breaks,” says a senior bullion analyst. “Silver may be shining. But confidence? That’s what’s running out.” |
