What’s Causing the 2025 Silver Supply Squeeze?

London, one of the world’s key silver trading hubs, has been hit particularly hard.
According to recent data from the London Bullion Market Association (LBMA), total silver holdings have fallen nearly 40% since 2021, marking one of the steepest declines on record. This also demonstrates that this supply squeeze has been coiling for some time to create today’s explosive movement.
This drop has been exacerbated by:

• US trade tariffs introduced earlier in 2025, which prompted a mass movement of silver from the UK to the US before duties took effect.
• Rising Indian imports ahead of Diwali, as retailers stocked up for the festival season.
• Freight bottlenecks, with some US traders reportedly booking cargo space on commercial airlines to move silver quickly.

The result is a “short squeeze” dynamic:

• Traders who sold silver short are now scrambling to buy back contracts to limit losses.
• Limited availability of physical bars is driving up spot premiums, especially in London and New York.
• Some smaller brokers have even halted new short positions due to liquidity concerns and delivery constraints.

This squeeze has not only tightened futures markets but has also spilled into the physical bullion trade. Premiums on popular coins such as the 1 oz Silver Britannia and American Silver Eagle have widened to £9–£12 per ounce above spot, compared to just £3–£4 earlier in the year.
It’s a clear indication that this is not a speculative bubble but a genuine shortage of deliverable silver, affecting every layer of the market – from institutional traders to retail investors.

This table shows a clear pattern of stress: open interest and inventories are falling sharply while lease rates and spot premiums are soaring. These concurrent shifts are the hallmark of a true physical short squeeze, not a speculative one.

Most mints and refiners don’t hold vast stockpiles of silver. Instead, they lease the metal from bullion banks, refine or mint it, and then repay the borrowed silver once new supply arrives.

With lease rates now sky-high, the economics of this system are breaking down.
For some refiners, borrowing silver has become uneconomical or even unviable, forcing them to prioritise core products and delay less profitable lines.

Recycled silver, mostly recovered from electronic waste, jewellery, and old photographic materials – typically provides 15–20% of annual supply. However, recycling volumes have plateaued in recent years. Much of today’s industrial silver use is dissipative, meaning it’s spread across tiny electronic components that are uneconomic to recover.

The surge in silver demand is being driven not just by investors but also by industrial innovation due to silver’s unique properties.
Silver’s unique electrical conductivity makes it essential in solar panels, EV batteries, data-centre circuitry, and AI computing hardware.

As nations accelerate the energy transition, industrial usage continues to expand.
Solar panel manufacturers alone are projected to consume 25% of global silver output by 2030, according to industry forecasts.

In the short term, the situation is likely to remain tense.
Even if prices stabilise, the structural supply deficit – alongside strong industrial demand – will keep the market tight.

Potential easing could come from:

• A slowdown in industrial demand growth.
• Increased recycling rates.
• New silver mining projects coming online in Mexico, China, or Peru.

However, these factors typically take years to materialise – not months.

The 2025 silver squeeze is more than market hype – it reflects a perfect storm of tightening supply, surging industrial demand, and stressed logistics.
Whether prices continue to climb or eventually cool, one thing is clear: silver’s role in modern technology and investment portfolios is stronger than ever.

For UK investors, keeping an eye on premiums and availability at trusted dealers is essential – as silver’s scarcity looks set to persist well into 2026.