``` The major commodity index rebalancing starts on Friday. Two major investment banks predict "silver will adjust within two weeks," Goldman Sachs says "the key is still London." ```

``` The major commodity index rebalancing starts on Friday. Two major investment banks predict "silver will adjust within two weeks," Goldman Sachs says "the key is still London." ```

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The Bloomberg Commodity Index (BCOM) annual rebalancing will begin this Friday, and the soaring silver is facing massive selling pressure.

According to Bloomberg data, this rebalancing will reduce the weight of gold from 20.4% to 14.9%. Silver will also face a weight reduction, dropping from 9.6% to 3.94%. The rebalancing period will last from January 9 to January 15.

The Bloomberg Commodity Index adopts an annual rebalancing mechanism. The weight calculation is based on two-thirds trading volume and one-third global production, with caps set for weights at the commodity, sector, and group levels. According to the index rules, the weight of a single commodity cannot exceed 15% to maintain diversification.

 

Regarding the impact of this adjustment, investment banks Deutsche Bank and TD Securities estimate that $7.7 billion of silver selling will flood the market within the next two weeks, equal to 13% of the total open interest in the COMEX silver market, possibly triggering a major price correction.

Deutsche Bank analyst Michael Hsueh pointed out, "Negative for precious metals, positive for crude oil." Based on open interest, silver will bear the greatest rebalancing selling pressure, followed by aluminum and gold. Buying demand will be WTI crude oil, natural gas, and low-sulfur diesel.

TD Securities analyst Daniel Ghali warned that trading volume in the largest silver ETF has reached extremely high levels only seen at previous market tops, and the premium is at a historic high, reflecting speculative frenzy among retail investors. He believes that the recent surge in silver is "similar to a blown-up arbitrage trade, and what follows will likely be the dramatic repricing commonly seen in the commodity cycle."

Goldman Sachs, from a supply and demand perspective, has a different view, arguing that liquidity in the London market is key to determining the direction of silver prices. Analyst Lina Thomas at the bank predicts that as long as the tight inventory situation in London is not alleviated, extreme price volatility will persist.

Index rebalancing will trigger massive silver sell-off

Deutsche Bank's analysis shows that this rebalancing has a negative impact on precious metals, but is positive for crude oil. It should be noted that supply-demand rebalancing is a process that takes several days, not something that can be completed in just one day.

Measured by open interest, the commodities under the greatest selling pressure during rebalancing are silver, aluminum, and gold in order; those with the largest rebalancing demand are WTI crude oil, natural gas, and low-sulfur diesel.

Measured by average daily trading volume, the order is aluminum, silver, and gold; WTI crude oil, low-sulfur diesel, and natural gas see the greatest demand rebalancing.

In terms of price impact, Deutsche Bank analyst Michael Hsueh estimates that the sale of 2.4 million ounces of gold could cause gold prices to fall by 2.5%-3.0%, depending on the ETF sensitivity model and time window used.

He reviewed major index rebalancing events over the past five years and found that from 2021 to 2024, significant weight changes were in line with the direction of price movements, but the drop in gold weighting for 2025 was accompanied by a price increase.

The scale of rebalancing sell-off may far exceed silver ETF demand

TD Securities' Daniel Ghali pointed out in a December 31 report that the trading volume of the largest silver ETF has reached an extreme level, only seen at previous market peaks. The premium to net asset value (NAV) is at a historic high, reflecting speculative frenzy among retail investors and highlighting liquidity constraints.

Ghali emphasized that since November, silver's "devilish blow-off top" was not a reflection of demand, supply, or fundamentals. He expects 13% of the open interest in the COMEX silver market will be sold off in the next two weeks, leading to a sharp repricing amid persistent liquidity vacuum.

This $7.7 billion of selling and related trading activities will come from widespread commodity index rebalancing, with trading volume likely to far exceed the extremes previously set by the largest silver ETF.

Tight London inventories amplify price volatility, silver prices may still rise further

Goldman Sachs analyst Lina Thomas provided a different perspective from the supply-demand structure. She expects that extreme price volatility—whether up or down—will continue.

The silver benchmark price is set in London, but deliverable inventories in this market have been substantially drained. On the supply side, speculation about U.S. trade policy—silver has been listed as a critical mineral and could theoretically be subject to tariffs as high as 50%—has prompted market participants to preemptively ship metals into the U.S., leading to inventory outflows from London and shrinking floating supply. On the demand side, when the recent rapid rise in silver ETF demand—these products are backed by physical silver—absorbed more metal, temporary shortages appeared in the London market.

To cope with temporary shortages in London, traders turned to the leasing market, where physical silver holders loan silver out for a fee. The silver lending cost (leasing rate) soared sharply, indicating the recent tightness.

Goldman data shows that low inventories create conditions for a short squeeze; when investor fund inflows absorb the remaining metal in London vaults, the rally accelerates, but when tightness eases, it sharply reverses. Normally, net weekly demand of 1,000 tons of silver pushes prices up about 2%, but during tight conditions, this sensitivity has soared to 7% (and vice versa).

Thomas said that as long as the silver mismatch in the U.S. persists and London liquidity is not replenished from elsewhere, and if investor enthusiasm continues, prices may rise further. ETF holdings remain below the 2021 peak, and with potential Fed rate cuts and a "diversification" theme, may rise further. Net managed money positions on COMEX are below historical averages, indicating that even with a 138% gain in 2025, investor demand is not yet overextended.

But Goldman Sachs also warns that if London liquidity is restored, downside risks for silver prices will be significant. For example, if the silver currently stranded in the U.S. returns to London, it could ease the tightness in London and trigger a price correction.

Risk warning and disclaimerThe market has risks, investment requires caution. This article does not constitute personal investment advice and does not take into account the individual investment goals, financial situation, or needs of specific users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular situation. Acting on this information is at your own risk. ```