Full Breakdown
Turmoil in the London Silver Market: A Short Squeeze and Its Implications
10/12/2025, 8:36:33 PM
Current Market Conditions
The London silver market is currently experiencing significant upheaval due to a massive short squeeze, which has driven prices above $50 an ounce for only the second time in history. This surge has evoked memories of the Hunt brothers' infamous attempt to corner the silver market in 1980. As a result, liquidity in the market has nearly evaporated, leaving traders who are short on silver struggling to source the metal and facing exorbitant borrowing costs to roll their positions.
Factors Driving the Surge
Several factors are contributing to the current spike in silver prices. Increased demand, particularly from India, coupled with a declining supply of tradable metal in London, has exacerbated the situation. Since mid-2021, London’s silver stockpile has decreased by one-third, primarily due to high demand outpacing mine production. Additionally, fears of potential U.S. tariffs have prompted a rush to export silver to the U.S., further straining available resources. The free float of silver available for trading in London has plummeted to approximately 200 million ounces, a 75% decrease from over 850 million ounces in mid-2019.
Historical Context
Silver prices in London reached above $50 an ounce for the first time during a price-setting event dating back to 1897. The premiums for spot prices in London have surged to as much as $3 over futures prices in New York, reminiscent of the 1980 market squeeze. Costs to borrow silver overnight in London have risen above 100% annually, surpassing levels seen during previous market squeezes.
Criticism and Market Responses
In response to the soaring prices, Kotak Mutual Fund has suspended lump sum investments in its Kotak Silver ETF Fund of Fund, citing the high spot premium for silver over the import parity price. Nilesh Shah, managing director of Kotak Mahindra AMC, stated that the fund will reopen for subscriptions once the spot premium aligns with the import parity price. Analysts suggest that the current premium is largely due to a supply mismatch rather than a global price re-rating.
Future Projections
Market experts predict that the current squeeze may ease as more silver becomes available through sales from exchange-traded funds or logistical transfers from other regions. Estimates indicate that between 15 million to 30 million ounces are being moved to alleviate tight market conditions. However, barriers such as the ongoing U.S. government shutdown and regulatory concerns regarding import tariffs remain significant hurdles.
Official Statements & Responses
The London Bullion Market Association is actively monitoring the tight conditions in the silver market. Analysts emphasize that the premium on silver ETFs in India is a distortion from supply constraints and may normalize once imports catch up. Experts advise new investors to avoid entering the silver market at this time, as the recent surge appears to be speculation-driven rather than based on long-term fundamentals.
Verbatim Quotes
- “Whenever the spot premium aligns with the import parity price, the fund of fund will open for subscription as we continue to maintain a bullish outlook on Silver as an asset class on a long-term basis,” — Nilesh Shah, Managing Director, Kotak Mahindra AMC
- “The overall silver price rally, fuelled by global industrial demand and investment interest, will likely persist even as this premium narrows,” — Shweta Rajani, Head - Mutual Funds, Anand Rathi Wealth Limited
- “Avoid large lump-sum allocations until the premium cools off.” — Trivesh D, COO, Tradejini
The London silver market remains in a state of flux, with stakeholders hoping for a return to stability as supply dynamics evolve.
