India's largest metals refinery ran out of silver. Shortages hit London too. The silver market is broken.

Sold Out in India, Panic in London

Bloomberg comments How the Silver Market Broke [behind paywall]

Key Takeaways

• The silver market crisis was caused by a combination of factors, including a multi-year solar power boom, a rush to ship metal to the US to beat possible tariffs, and a sudden spike in demand from India, particularly during the Diwali holiday season. 

This account of how the silver market broke is based on conversations with more than two dozen traders, bankers, refiners, investors and other market participants, many of whom spoke on condition of anonymity as they weren’t authorized to speak publicly.

100-to-1 Ratio

When traders and analysts try to pinpoint the immediate cause of the silver crisis of 2025, they inevitably point to India.

During the Diwali holiday season, hundreds of millions of devotees buy billions of rupees worth of jewelry to celebrate the goddess Lakshmi. Asia’s refineries usually meet this demand, which typically favors gold. But this year, many Indians turned to a different precious metal: silver.

The pivot wasn’t random. For months, India’s social media stars promoted the idea that after gold’s record rally, silver was next to soar. The hype began in April, when investment banker and content creator Sarthak Ahuja told his nearly 3 million followers that silver’s 100-to-1 price ratio to gold made it the obvious buy this year. His video went viral during Akshaya Tritiya, an auspicious day for buying gold — second only to the Dhanteras festival on Oct. 18.

The premiums for silver in India above global prices, usually no more than about a few cents an ounce, started to rise above $0.50, and then above $1, as supplies ran short.

And just as Indian demand was soaring, China — a key source of supply — closed for a week-long holiday. So bullion dealers turned to London.

They soon discovered that the city’s precious metals vaults were largely sold out. While London vaults underpinning the global market hold more than $36 billion in silver, the majority of it was owned by investors in exchange-traded funds.

Demand for silver ETFs has soared in recent months, amid concerns about the stability of the US dollar, a wave of investment that’s become known as the “debasement trade.” Since the start of 2025, ETF investors have hoovered up more than 100 million ounces of silver, according to data compiled by Bloomberg — leaving a dwindling stockpile available to supply the sudden boom in Indian demand.

Premiums soared above $5 an ounce, well beyond the normal spread of a few cents. “I have been here in this company for the last 28 years and I have never seen these kind of premiums,” said M.D. Overseas’s Mittal.

Panic in London

Traders described a growing panic as liquidity dried up. The cost of borrowing silver overnight soared to annualized rates of as high as 200%, according to consultancy Metals Focus. As the big banks that dominate the London market started to step back from the silver market, bid-ask spreads became so wide as to make trading near impossible.

In another sign of the disarray in the market, one trader said the big banks were offering such wildly different quotes that he was able to buy from one bank at its ask price and simultaneously sell to another at its bid for an immediate profit – a rare sign of dysfunction in such a large and competitive market.

For the past five years, silver demand has outstripped silver supply from mines and recycled metal — in large part thanks to a boom in the solar industry, which uses silver in its photovoltaic cells. Since 2021, demand has outstripped supply by a total of 678 million ounces, according to the Silver Institute, with photovoltaic demand more than doubling over the period. That compares to total inventories in London of around 1.1 billion ounces at the start of 2021.

The stress in the silver market has been building since the start of the year, as fears that silver would be ensnared by President Donald Trump’s reciprocal tariffs prompted traders to attempt to front-run any possible levies by shipping more than 200 million ounces of metal into New York warehouses.

On top of the tariff drawdowns, more than 100 million ounces of silver flowed into global ETFs in the year through September, as a wave of investment demand for precious metals supercharged a rally that helped drive gold through $4,000 an ounce for the first time in history.

Together, the two trends drained London’s reserves, leaving dangerously little metal available to underpin the roughly 250 million ounces of silver that change hands in the London market every day. Based on Metals Focus estimates, by early October the “free float” of metal not owned by ETFs in the London silver market had dropped to less than 150 million ounces.

On Friday, Bloomberg also reported Silver Falls More Than 6% as Precious Metals Retreat After Rally

• Silver fell more than 6% in its biggest drop in six months as the broad precious metals group retreated following a furious rally this week.
• Concerns eased over credit quality in the US and trade frictions between China and the US, which is denting haven demand for gold and silver.
• A historic squeeze in the silver market in London is also showing signs of easing, prompting some profit-taking by investors.

I see little reason to believe we have seen the end of this rally. There is no fiscal discipline anywhere.

Despite soaring deficits and inflation well above target, the Fed is cutting rates anyway.

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