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Silver’s Historic Short Squeeze

The Metal Turns White Hot Amid Global Supply Crunch

The silver market is witnessing an unprecedented surge, driven by a massive, short squeeze that has pushed prices to multi-decade highs. The international spot price touched $53 per ounce, surpassing levels last seen during the Hunt brothers’ 1980 squeeze. Global spot prices are trading at historic premiums over major futures contracts. In India, the IBJA spot hit Rs.178,100, well above the MCX futures peak of Rs.162,700, reflecting acute physical scarcity. This surge is fueled by a near-total drying up of liquidity in London and other key trading centers, forcing short sellers to scramble for metal and pay steep borrowing costs. In India, similar supply constraints are driving buyers to pay premiums over futures.

Tailwinds

Silver is a highly strategic metal, vital for modern electronics, solar energy, and defense applications. Its dual role, as both a critical industrial commodity, accounting for roughly 59% of total usage, and a safe-haven asset during periods of geopolitical or economic uncertainty, has underpinned strong demand. Factors such as a weakening dollar, rising global debt levels, geopolitical tensions, and ongoing trade disputes are boosting its safe-haven appeal, while growing industrial applications in electronics, solar, and defense continue to support consumption. Recently, the United States proposed classifying silver as a strategic metal, a move that could encourage stockpiling and further strengthen demand. London Squeeze The London silver market has recently experienced one of the sharpest liquidity crunches in decades, triggering a historic short squeeze. Spot silver availability has dried up almost completely, forcing market participants holding short positions to scramble for physical metal and pay steep borrowing costs to roll contracts forward. One-month lease rates briefly surged above 30%, while overnight borrowing costs spiked beyond 100% before settling between 14–30%. This acute liquidity stress, combined with strong ETF inflows, rising industrial consumption, and Indian imports, has amplified the disconnect between spot and futures markets globally

London Squeeze

The London silver market has recently experienced one of the sharpest liquidity crunches in decades, triggering a historic short squeeze.

Spot silver availability has dried up almost completely, forcing market participants holding short positions to scramble for physical metal and pay steep borrowing costs to roll contracts forward.

One-month lease rates briefly surged above 30%, while overnight borrowing costs spiked beyond 100% before settling between 14–30%. This acute liquidity stress, combined with strong ETF inflows, rising industrial consumption, and Indian imports, has amplified the disconnect between spot and futures markets globally.

Indian Demand Surge

India’s festive season has further intensified demand. Silver imports have nearly doubled from last year, with both physical and ETF buying on the rise.

NTDV Profit reports that jewelers in Zaveri Bazaar, Mumbai, have seen silver prices touch Rs.2 lakh per kilogram, while IBJA quoted the price at Rs.178,100 per kilogram on October 14.

The shortage of physical silver has also impacted mutual fund activity: major fund houses such as SBI Mutual Fund, Kotak Mutual Fund, and UTI Mutual Fund have halted subscriptions in new silver ETF fund-of-funds o?erings. This measure aims to protect investors, as domestic silver prices are trading at a premium to international levels due to the physical supply crunch, which has constrained the creation of new ETF units.

Spot-Futures Backwardation

The silver market experienced brief but notable backwardation in August 2025, where the spot price exceeded futures. This indicates acute physical supply stress, with immediate demand outstripping forward market expectations.

Backwardation coincided with significant withdrawals from major exchange vaults, driving spot premiums higher and rewarding holders of physical silver, while imposing higher costs on buyers seeking immediate delivery.

Inventory Drain

The ongoing silver squeeze has intensified as the structural supply deficit continues to drain visible inventories. Since 2019, over 1 billion ounces have been pulled from global “available mobile” stock.

LBMA vaults in London have dropped 31% from 35,667 tons in April 2020 to 24,581 tons in September 2025, while COMEX stocks stand near record highs at 526.1 million ounces, highlighting pressure on immediate delivery supplies.

In China, SHFE vaults fell to an 8-month low of 937 tons in early 2025, with 480 tons withdrawn YTD, signaling a shift to private and long-term storage. Globally, total visible inventories are around 23,000 tons, but only 8,000–9,000 tons are realistically available for sale, with a market response lag of 3–9 months, underscoring severe tightness in physical silver supply.

Currency Dynamics

Silver is benefiting from a weaker U.S. dollar, which has dropped over 9% since the start of 2025, boosting its appeal to global investors. In India, the rupee has also weakened due to U.S. tari?s on imports and FII sell-o?s, pushing domestic silver and gold prices higher. The dollar’s decline is driving safe-haven demand worldwide, with ETF inflows and speculative interest adding further support to silver prices.

Global ETF Demand

Silver ETFs aim to mirror the performance of silver prices. Silver exchange-traded funds (ETFs) have experienced a remarkable surge in demand in 2025, driven by a combination of robust industrial applications, geopolitical uncertainties, and investor appetite for safehaven assets. In India, silver ETFs have delivered near 100% returns this year, outpacing equities. Silver ETFs were introduced in the Indian market in January 2022. India's ETF holdings is at a record high of 38.6 million ounces (1,200 tons) by January 2025.

Industrial Demand

Industrial demand, the largest and fastest-growing segment of silver consumption, is fueling the current bull market. Projected to grow 5–6% annually through 2027, it reached a record 680.5 million ounces in 2024, up 11% from 2023. Key drivers include clean energy, electronics/5G, medical, and defense applications. Photovoltaic technology could consume over 30% of global silver production by 2030, while electric vehicle demand is expected to hit 90 million ounces by 2025, reinforcing silver’s critical industrial role.

Annual Demand

? Industrial Applications 60%

? Jewelry 18% (40% of this is in India)

? Investment Coins & Bars 18%

? Silverware 4%

Supply Shortage

According to data from The Silver Institute, global silver deficit marks the fifth consecutive year of supply shortfall, underscoring a persistent structural deficit in the silver market that is expected to extend into 2026.

Also, approximately 70% of silver is produced as a by-product of zinc, lead, copper, or gold mining, meaning silver output is largely influenced by the economics of these primary metals rather than silver prices alone. Unless base metal prices rise significantly, silver supply remains relatively inelastic. Even with higher silver prices, a meaningful market balance is unlikely to be achieved before 2028.

Declining ore grades and regulatory hurdles in mining limits the increase in supply. Mexico, China, Peru, and Chile are some of the largest producers, with Mexico being the biggest supplier.

There is an estimated 550,000–600,000 metric tons of above-ground silver currently in circulation (Jewelry & Silverware – 250000 to 300000 metric tons ; Coins & Bullion – 60000 to 70000 metric tons; Rest in Industrial Stockpiles).

Silver's above-ground stock situation is dramatically di?erent from that of gold:

? Gold's recovery rate: More than 90% of all gold ever mined is believed to still exist in recoverable form.

? Silver's recovery rate: Only about 30–35% of all mined silver remains in recoverable above-ground stocks.

Outlook

Silver remains firmly in a structurally bullish trend, underpinned by acute supply pressures and robust industrial and investment demand. In the near term, some consolidation or correction may occur as supply tensions ease.

MCX Futures - Immediate resistance near Rs.1.65 lakh; holding above this could open the way to Rs.1.80 lakh and ultimately Rs.2.10 lakh. Support lies at Rs.1.57 lakh, with further floors at Rs.1.46 lakh and Rs.1.39 lakh.

COMEX Futures - Immediate resistance is near $55 per ounce, with the next levels at $65 and $70, while support is seen around $48, followed by $44.

Overall, silver’s trajectory remains positive, with some consolidation or correction may occur as supply tensions ease.

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