The rebalancing of major commodity indexes begins on Friday, with two major investment banks predicting a “silver adjustment within two weeks.” Goldman Sachs says “London remains the key.”

Bloomberg Commodity Index (BCOM) annual rebalancing will begin this Friday, putting silver under massive selling pressure. Investment banks Deutsche Bank and TD Securities estimate that $7.7 billion worth of silver sell orders will flood the market over the next two weeks, equivalent to 13% of the total open interest in the COMEX silver market, possibly triggering a significant price correction. According to Bloomberg data, this rebalancing will reduce the gold weighting from 20.4% to 14.9%, with silver also facing a weight reduction. Deutsche Bank analyst Michael Hsueh pointed out, "Based on open interest size, silver will face the largest rebalancing selling pressure, followed by aluminum and gold. The rebalancing period will last from January 9 to January 15." TD Securities analyst Daniel Ghali warned that trading volume in the largest silver ETF has reached extreme levels, only seen at previous market tops, with premiums at historic highs, reflecting speculative frenzy among retail investors. "He believes the recent surge in silver resembles a blown-out arbitrage trade, and what comes next will be the kind of sharp repricing commonly seen in commodity cycles." Goldman Sachs offered a different perspective from a supply and demand angle, saying that liquidity in the London market is the key factor determining silver price trends. Analyst Lina Thomas noted, "As long as London's tight inventory situation does not ease, extreme price volatility will persist." ## Index Rebalancing Triggers Massive Selloff The Bloomberg Commodity Index uses an annual rebalancing mechanism, with weightings based on two-thirds trading volume and one-third global output, and sets upper limits for weights at the commodity, sector, and group levels. According to index rules, the weighting of a single commodity may not exceed 15%, to maintain diversification. Deutsche Bank's analysis shows that the substantial reduction in gold weighting is precisely because it hit this upper limit. Measured by open interest size, commodities facing the greatest selling pressure during the rebalancing are silver, aluminum, and gold; measured by average daily trading volume, they are aluminum, silver, and gold.  Deutsche Bank analyst Michael Hsueh estimates that the sale of 2.4 million ounces of gold could push gold prices down by 2.5%-3.0%, depending on the sensitivity model used for ETFs and the time window. He reviewed major weighting changes in index rebalancing events over the past five years and found that between 2021 and 2024, significant weight changes aligned with price trends, but in 2025, a reduction in gold weighting coincided with a rise in gold price. This rebalancing will have a negative impact on precious metals but is beneficial for crude oil. The commodities most in demand for rebalancing are WTI crude oil, natural gas, and low-sulfur diesel. ## Retail Frenzy Pushes Silver to Dangerous Levels TD Securities’ Daniel Ghali noted in a December 31 report that trading volumes in the largest silver ETF have hit extreme levels, only seen at previous market tops. The product’s premium to NAV is at historic highs, reflecting retail investors’ speculative frenzy and also highlighting liquidity constraints. Ghali emphasized that since November, the “devilish blow-off top” in silver is not a reflection of demand, supply, or fundamentals. "He expects that in the next two weeks, 13% of the open interest in the COMEX silver market will be sold, causing a dramatic repricing due to sustained liquidity vacuum." This $7.7 billion in sell orders and related trading activity will be generated by the widespread commodity index rebalancing, and trading volumes could far exceed the extreme levels previously seen by the largest silver ETF. ## Tight London Inventory Amplifies Price Volatility Goldman Sachs analyst Lina Thomas offered a different perspective from the supply-demand structure. She predicts that extreme price swings—up or down—will persist, and advises risk-averse clients to remain cautious. Thomas noted that recent price movements do reflect the direction of Fed rate cuts and the inflow of private investment funds under the potential “diversification” theme, "but the squeeze in London market liquidity has amplified these swings, as London is where benchmark silver prices are set." Speculation surrounding US trade policy—silver is now on the critical minerals list and could theoretically face tariffs as high as 50% (although the exemption was granted in April 2025)—has prompted market participants to ship metals into the US early in 2025, causing outflows from London inventories and reducing available liquidity. As demand from silver ETFs quickly absorbs more physical silver, the London market is experiencing a temporary shortage of deliverable silver. To cope with the temporary shortage in London, traders have turned to the leasing market, with holders of physical silver lending silver for a fee. Silver lending costs (leasing rates) have soared, indicating the intensity of the current tightness. ## Thin Inventory Creates Squeeze Conditions Goldman Sachs data show that lower inventories create conditions for squeezes: when investor fund flows absorb the remaining metals in London vaults, price surges accelerate, and when tightness eases, price reversals are sharp. Typically, weekly net demand of 1,000 tons of silver would drive prices up about 2%, but in tight conditions sensitivity has surged to 7% (and vice versa). Thomas believes that as long as the mismatch of silver in the US persists, and London liquidity is not restored via silver from other regions, and if investor enthusiasm continues, prices could rise further. ETF holdings remain below the 2021 peak and could rise further amid Fed rate cuts and a possible "diversification" theme. Net managed money positions on COMEX are below the historic average, indicating that even with a 138% gain in 2025, investor demand has not been excessively expanded. "But Goldman Sachs warns that if London liquidity is restored, the downside risk for silver prices is significant. For example, if the silver currently stuck in the US flows back to London, it could ease London's tightness and trigger a price correction." Goldman believes the likelihood of US tariffs on silver remains low, so clearer policy could trigger some metals to return from the US, easing London's tight market and correcting prices. However, even though gold's exemption from US tariffs was clarified in August last year, most of the gold still remains in New York COMEX vaults, underscoring lingering policy tail risk. If silver follows the same pattern, most silver may remain in New York COMEX vaults even after clarification on US tariffs, and extreme price volatility could persist. 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