Gold and silver snapped back sharply on Friday, bouncing after a turbulent week that saw precious metal prices nosedive from recent all-time highs. But while gold managed to reclaim nearly half of its weekly loss, the real story lies beneath the surface in the skyrocketing cost of borrowing silver, which signals deep stress in the physical market and mounting supply-demand imbalances in London, the global epicenter of bullion trading.
Silver lease rates, the cost institutions pay to borrow metal, soared to 6.3% annualized for one-month contracts in London, nearing highs not seen since last October’s silver squeeze. This spike confirms the escalating scarcity of deliverable physical metal and stands in stark contrast to the speculative narrative that recent price declines reflect waning interest. Rather, it underscores a fundamentally tight market, one where physical silver is increasingly difficult and expensive to secure.
Gold traded at $4,950 per ounce on Friday, recovering 45.9% of this week’s plunge from record highs near $5,600. Silver, meanwhile, bounced to $76.65 after hitting a seven-week low beneath $75, still down 37.5% from its all-time high of $121 per ounce set just days ago.
Yet in futures markets, silver presented a rare and telling anomaly: London spot bullion traded above every New York COMEX futures contract through July. This backwardation, where near-month prices exceed those further out, is a hallmark of supply strain. It reinforces the message from soaring lease rates: immediate delivery of silver is far more valuable than promises of future supply.
“Backwardation and lease rate jumps are sending a clear signal,” says Bruce Ikemizu, former Tokyo trader and now head of the Japan Bullion Market Association. “The market is telling participants: You need physical silver now, not paper contracts.”
The dramatic spike in one-month lease rates, of more than 6% from typical year-round rates of just 0.3% to 0.5%, reflects a worsening inventory crunch in the LBMA vaults in London. Known as the heartbeat of global spot silver trading, LBMA stocks have shrunk to around 155 million ounces, now a fraction of the 900 million to 1.2 billion ounces in annual floating demand.
The lease rate is effectively the price of urgency, a number that only surges when participants fear they won’t get the metal in time. In this case, elevated premiums reflect a market that is running short of physical supply, even as price action in futures and ETFs continues to disorient speculative funds.
Last year, a similar spike in lease rates followed dislocations caused by the redirection of bullion to New York amid tariff concerns under the Trump administration. Today, the backdrop is different. It’s not just logistics reshuffling inventory flow; it’s a real structural shortage.
Amid the price pullback, investment flows into silver remained robust. The iShares Silver Trust (SLV), the world’s largest silver ETF, contracted 0.8% Thursday as traders locked in profits. But for the week, SLV grew by 4.7%, needing an additional 724 tonnes of physical backing, its biggest weekly inflow since the viral #silversqueeze social media campaign of the New Year 2021.
Saxo Bank’s commodity strategist Ole Hansen noted that interest in silver call options has intensified even as prices fell, suggesting that speculative positioning still expects upside and that recent declines are viewed as a buying opportunity rather than the start of a broader rout. “A sharp rebound risks triggering a repeat of forced buying as short-dated option sellers rush to cover exposures,” Hansen said.
Broader market sentiment also stabilized, giving risk assets some breathing room. The U.S. dollar paused after a 1.7% rally from recent lows, while tech stocks, Bitcoin, and base metals all found footing following steep sell-offs.
A key factor in calming financial nerves was Donald Trump’s nomination of Kevin Warsh as the next Federal Reserve chair. Warsh, seen as a traditionalist relative to other shortlisted candidates, provided investors with relief, as they feared more radical policy shifts. European Central Bank President Christine Lagarde welcomed the appointment, citing shared crisis-era experience as a Chicago Fed alumna.
That sense of institutional reliability may be helping gold stabilize more quickly than silver, as traders view gold as a monetary haven. In contrast, silver continues to straddle its industrial and investment narratives.
Markets are also bracing for the impending Chinese New Year holiday, which begins next Friday and removes the world’s largest physical consumer of precious metals from trading screens for over a week. Each year, this event creates a vacuum of liquidity, but this time, it could further accentuate volatility in an already disrupted market, according to MKS Pamp strategist Nicky Shiels. “If the global price-setter is out for 10 days, that risks sharp price dislocations in an inventory-constrained market,” she warned in a note Friday.
From lease rates and backwardation to ETF inflows and inventory levels, all indicators point to a silver market still under intense structural pressure. The apparent price collapse seen earlier this week was more likely the result of overextended paper positions unwinding, not a collapse in real demand.
With physical metal scarce and industrial usage from solar panels and EVs surging, the foundation remains strong for higher silver prices in the mid-term. BMI, a unit of Fitch, projects that the global silver deficit will persist through 2026, driven by both investment demand and declining mined supply, particularly from the top producer, Mexico.