What’s Causing the Silver Squeeze?

Silver prices have soared in 2025, gaining more than 80% in dollar terms, from around $29 per ounce to new all-time highs above $50.

Markets are now warning of a possible “silver squeeze,” as physical supply tightens and prices continue to rise. But what’s behind the current supply chain stress in silver?

Lease Rates Are Climbing to Extreme Levels

Lease rates represent the cost of borrowing physical silver over a given period, similar to an interest rate, but instead of borrowing currency, borrowers lease metal.

Under normal conditions, one-month silver lease rates in London sit around 0.35%. On October 9th 2025 however, lease rates for silver spiked as high as 39%, reflecting just how scarce physical silver has become.

This surge signals that the shortage is not merely speculative or “paper-driven”; it’s rooted in a genuine lack of deliverable metal. High lease rates indicate that participants are willing to pay extraordinary premiums simply to secure immediate access to physical silver.

The London market in particular has been affected, with the LBMA’s silver holding falling almost 40% since 2021. Concerns over US tariffs earlier this year, also prompted an exodus of silver from the UK to the US as traders tried to get silver into the country before tariffs could be applied.

Imports of silver to India have also jumped ahead of Diwali as shops tried to stock up for the festive holiday. In the US, some traders have even resorted to booking cargo space on commercial flights, normally reserved for gold, to transport silver quickly and capitalise on elevated physical premiums.

This tightening has also placed significant strain on traders holding short positions, many of whom have been unable to source physical metal to settle contracts. As a result, they’ve been forced to pay high costs to roll positions forward, further amplifying the squeeze in the physical market.

High Lease Rates Are Squeezing Mints and Refiners

Mints and refiners often lease silver from bullion banks or institutional holders rather than owning large inventories. They borrow the metal, refine or mint it into coins and bars, sell the products, and then repay the metal once new supply arrives.

With lease rates jumping, the cost of financing working metal has skyrocketed. For some refiners, borrowing silver may become uneconomic or even impossible, forcing delays in production and a focus on core, high-demand products. This in turn reduces available supply and increases product premiums.

To avoid costly leases, some mints may start buying more metal outright, which adds further short-term pressure to prices.

The effects are already visible in the UK, where some bullion dealers are reporting low inventories or “out of stock” notices on key items from major producers such as The Royal Mint.

Can Silver Supply Be Increased?

Silver has been in a structural supply deficit for several years as mine output lags rising demand. While higher prices usually incentivise more mining, silver is often a by-product of other metal operations (like copper, lead, or zinc), meaning output cannot easily be ramped up.

Industrial demand, particularly from renewable energy, solar panels, and data centres linked to AI growth, continues to accelerate. With strong investment and safe-haven demand on top, the supply deficit appears to be worsening rather than improving.

What This Means for Investors

In the short term, expect tight availability of physical silver coins and bars, with higher premiums for newly minted products.

As prices rise, some investors may take profits and sell into strength, helping ease supply pressures, but so far, any dips in price have been quickly bought, and the market remains well-supported near $50 per ounce.

This article was written by BullionByPost.

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