Did Silver Shorts Just Narrowly Avoid A Default By Draining Vaults During Friday's Sell Off?

SGE Report: 5.9% Silver Vault Drain

As of February 4, 2026, based on the China SGE/SHFE report, the silver vault holdings are:

To convert to ounces:

• 1 kilogram = 32.1507 troy ounces

• 493,865 kg × 32.1507 = 15,878,078 troy ounces

✅ Approx. 15.88 million ounces remain in China's SGE silver vaults.

This is down from over 2,000 tons just a year ago—meaning over 75% of inventory has been drained, with accelerating outflows in the last few days.

✅ There were roughly 2.5 billion ounces of silver traded on FRIDAY.

Shanghai Open Interest Collapse

Massive drop in open interest = weak hands flushed.

This is not the top—this is what early bull markets look like after froth is removed.

Long-term holders are stepping in, recognizing this isn’t about price anymore—it’s about possession.

Let’s read between the lines:

• Feb 4: 

  • Nearly 6% of total remaining silver in SGE vaults vanished in a single day.

  • That’s 26.4 metric tons, or over 850,000 ounces gone—overnight.

• This follows multiple days of multi-ton withdrawals.

• That leaves under 16 million ounces in China’s main vault.

  • At this pace, the SGE would be fully drained in just weeks.

Now pair that with:

• Open interest collapsing on both SHFE and COMEX.

  • That’s not normal market rotation. That’s exodus. Exit. Evacuation.

• Backwardation widening—futures below spot—screams "I need it now" not "someday."

  • That's a market screaming for delivery, not promises.

• Paper shorts forced to deliver on COMEX—an extreme rarity.

  • It’s no longer bluffing chips on a table. The other side called.

What’s going on?

It looks like a quiet default is being dodged by draining vaults.

The price takedown wasn’t just a shakeout—it was a scramble to source physical in a world where trust in financial plumbing is fracturing.

It’s unlikely to see inventories collapse like this and open interest vanish unless...

👉 The “silver” everyone thought they had isn’t there.

This is not a supply/demand imbalance.

This is a confidence break in the collateral layer itself.

Smashing price is supposed to:

• Kill demand

• Flush longs

• Restore confidence in paper

Instead, it:

• Accelerated physical withdrawals

• Collapsed open interest

• Widened East–West price spreads

• Exposed that paper silver ≠ real silver

Why?

Because this move is not about silver as a trade.

It’s about silver as:

• Collateral

• Insurance

• A hedge against monetary disorder

When capital starts worrying about:

• Sovereign debt sustainability

• Currency debasement

• Weaponization of reserves

It asks one question:

And silver sits right at the fault line:

• Too small a market

• Too industrially critical

• Too financially leveraged

So when price is smashed artificially, real buyers step in, not speculators.

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Luke Lovett
Cell: 704.497.7324
Undervalued Assets | Sovereign Signal
Email: [email protected]

Disclaimer:
This content is for educational purposes only—not financial, legal, tax, or investment advice. I’m not a licensed advisor, and nothing herein should be relied upon to make investment decisions. Markets change fast. While accuracy is the goal, no guarantees are made. Past performance ≠ future results. Some insights paraphrase third-party experts for commentary—without endorsement or affiliation. Always do your own research and consult a licensed professional before investing. I do not sell metals, process transactions, or hold funds. All orders go directly through licensed dealers.