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The price of silver has soared partly due to a massive, short squeeze and a shortage of available silver in London.

As of Monday (Oct. 13) morning, silver was trading at $51.86.

In simplest terms, a short occurs when somebody sells a silver contract today, committing to deliver silver at a set price in the future with the expectation of a falling market price. If the price drops, the investor can sell the contract and pocket the gain. But if the price rises, the investor suffers a loss. If nobody will buy the contract, he is obligated to deliver the silver.

This short squeeze has caused liquidity in the London market to virtually dry up. This has driven London benchmark prices higher at a very rapid pace, and it has caused a price gap between New York and London. The London spot price recently shot to a $3 premium over New York futures. The last time we saw a premium like this was during the Hunt Brothers’ squeeze.

Meanwhile, the cost to borrow silver overnight rose to well over 100 percent on an annualized basis.

In another sign of market stress, the bid-ask spread for London silver exploded from its typical level of around 3 cents to well over 20 cents per ounce.

“Banks don’t want to quote each other, so the quotes get extremely wide,” a former JPMorgan Chase managing director told Bloomberg. “That’s creating this tremendous illiquidity.”

According to Bloomberg, the squeeze is so dramatic, some traders have booked cargo ships to transport silver from New York to London to take advantage of the London price premium. This is a very unusual move that normally only occurs in the gold market, as silver is much bulkier and expensive to move.

Long-time observers compare the current situation and the “chaos of the last few days” to the infamous 1980 Hunt Brothers squeeze. Some say it’s even more extreme.

Greenland Investment CIO Anant Jatia said he’s never seen anything like it.

“What we are seeing in silver is entirely unprecedented. There is no liquidity available currently.”

Growing investor interest in silver as gold continued to set record after record, corresponding with a surge in Indian silver demand.

In July, silver set a record in rupee terms of ₹114,875 per kilogram (around $41/ounce). A silver production shortfall in India also sent the price to a significant premium locally.

Indian silver imports exploded by 431 percent year-over-year through the first five months of 2025, totaling 544.1 tonnes.

Initially, Indian buyers were primarily sourcing silver from Hong Kong, but reportedly shifted more toward London during the Chinese Golden Week Holiday in the first week of October.

According to Bloomberg, one India-based silver ETF halted new investments last week because of a domestic metal shortage.

Not Enough Actual Silver
 

The root of the problem is that there isn’t enough physical silver. And there are a lot of future contracts.

The market depends on hundreds of millions of ounces of silver stored in London vaults. Over the last several years, there has been a steady drain of metal.

This is primarily due to a persistent structural market supply deficit.

Global demand outstripped the silver supply for the fourth consecutive year in '24. The structural market deficit came in at 148.9 million ounces. That drove the four-year market shortfall to 678 million ounces, the equivalent of 10 months of mining supply in 2024.

The Silver Institute projects a fifth straight supply deficit this year.

The situation was exacerbated earlier this year when tariff worries drove a movement of metal from London to New York to capitalize on the price premium in the U.S.

According to Bloomberg, silver inventories in London have dropped by one-third since mid-2021.

But the problem is even deeper than that.

Much of the silver in London vaults is already committed to ETFs. That leaves very little “free float” metal to provide liquidity to the London market.

According to Bloomberg, the amount of free float silver has dropped from a high of 850 million ounces to just 200 million ounces, a 75 percent decline.

In a Substack article, analyst David Jensen said the situation is even worse than Bloomberg reported. He estimates there are only 140 million ounces available.

There is really only one way to relieve the pressure – make more silver available in London. This can only happen if ETFs sell, freeing up metal for the free float stock, or by physically moving silver to London from overseas.

An executive at a logistics company said he has received calls from customers seeking to take silver out of New York Comex vaults and move it to London. He estimated traders want to shift between 15 and 30 million ounces of metal between the two hubs. That totals over 2 million pounds of silver.

A spokesperson for a precious metal refiner told Bloomberg, “There’ll be a natural momentum for material to move back into London and hopefully things will normalize.”

“It’s just a question of mobilizing those balances that are sitting elsewhere in the world and moving them back to London.”

It sounds simple, but it’s not.

In the first place, it's going to require higher prices to clear the market.

Furthermore, according to Bloomberg, some traders are reluctant to move metal from New York to London.

“The logistics are complicated, particularly amid fears the government shutdown may slow down customs processes, and the London squeeze means that even one day’s delay could be punishingly expensive.”

And as prices rise, the situation will likely snowball.

Jensen wrote that the situation raises additional questions not only about the billions of ounces of silver spot/cash contracts standing in the silver market, but also the gold contracts as well.

“Investors and industrial users are increasingly saying ‘we’ll take the metal,’ which spells the end for leveraged pyramid schemes such as the London precious metals market.” 

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