Silver surges to fresh record highs as structural tightness meets macro tailwinds

London silver squeeze: the immediate ignition point

The latest surge traces back to the October historic tightening in London, still the main centre for trading physical silver. Over recent months, London vaults have seen heavy and persistent drawdowns as metal was shipped to satisfy strong US and Indian demand. The result has been a collapse in “free-float” inventory — unencumbered metal not tied up in leasing programmes, ETFs or industrial contracts.

As availability dwindled, silver lease rates spiked sharply, forcing those short physical to scramble for cover. With little metal available for prompt delivery, the squeeze dynamic intensified. This is the type of market where price becomes secondary; the priority becomes securing any available ounces. Friday’s vertical price action simply reflected the moment when those physical constraints forced their way into the financial market.

China’s decade-low inventories: the second leg of the supply shock

China has quietly added significant fuel to the fire. Exchange-monitored silver stocks in Shanghai have plunged to their lowest level in a decade, reflecting not only robust industrial demand towards the so-called “green” sectors — photovoltaics, electronics and EV components, but also recently a pull from Europe to mitigate the mentioned shortfall in the London cash market. 

US critical mineral policy, a major and powerful disruptor

The addition of silver to the US Critical Minerals List in 2025 has had far-reaching implications. Traders, refiners and industrial users front-loaded shipments to the US ahead of potential tariffs or quotas, mirroring similar behaviour observed in copper earlier this year. That flow of metal into the US effectively removed supply from the global pool.

Because US inventory tends to be sticky — held for industrial processes, defence procurement or strategic stockpiling — the market has experienced what can best be described as a geographic bottleneck. Silver is available inside the US, but not necessarily where the LBMA or Asian physical markets need it. This mismatch has quietly tightened global availability and added yet another structural layer beneath the breakout.

Positioning: hedge funds caught offside

Still six weeks behind real-time updates following the US government shutdown, the CFTC has so far released data up to 14 October, giving us an opportunity to gauge managed money positioned in gold and silver as both metals pushed toward their 21 October peaks, before correcting 11.3% and 15.4% respectively. The strong rally from mid-August triggered long liquidation from leveraged funds such as hedge funds as they reduced exposure to maintain an unchanged value at risk. Data up until 14 October showed managed money accounts cutting their net long in COMEX gold futures for a sixth consecutive week, reducing the position to a 19‑month low of 110k contracts.

Silver showed a similar pattern, with funds trimming longs for a third consecutive week to a six‑month low near 25k contracts. If that behaviour extended into the subsequent correction, it suggests this investor group entered the latest rebound with minimal exposure — potentially even net short — leaving them poorly positioned for the sharp recovery seen during the past two weeks. Confirmation will depend on remaining CFTC releases, with full live reporting following the US government shutdown not expected until late January according to the agency’s latest timeline.

Macro backdrop: debasement and inflation hedge remain a focus

While the physical market has provided the structural foundation for silver’s rally, the macro environment supplied the accelerant. Fed rate cuts: The Federal Reserve’s pivot toward a lower‑rate trajectory has and will continue lowering the opportunity cost of holding a non-yielding asset like silver. With markets now expecting multiple cuts, starting this month and continuing through 2026, the monetary backdrop has shifted decisively in favour of hard assets. Adding to this, expectations are building that President Trump will nominate Kevin Hassett—an outspoken advocate for lower rates—to replace Jerome Powell next year, a prospect that has raised fresh concerns about the Federal Reserve’s independence from political influence. 

Debasement concerns: Persistent fiscal deficits, a softening labour market and renewed discussions about long-term debt sustainability have strengthened investor appetite for hard assets. The current rally is no longer dominated by retail enthusiasm, with institutional buyers — particularly macro funds and family offices seeking to hedge against slow-moving but entrenched inflationary pressures, and the risk of a debt spiral. 

Green demand: the industrial floor remains intact

While central bank demand remains a key and constant source of demand of gold, industrial demand continues to be the market’s silent anchor. Silver has now run a structural supply deficit for five consecutive years, and 2025 marked another record year for photovoltaic consumption. EV manufacturing is also absorbing increasing volumes of silver, and substitution options remain limited or technologically infeasible in the short run.

This is classic inelastic demand. Industrial buyers cannot meaningfully reduce silver intensity without compromising product performance, a behaviour that has created a resilient demand floor that cushions corrections and accelerates recoveries.

Gold-silver ratio: the slingshot unfolding

The gold-silver ratio (XAUXAG), which peaked above 105 in April, has continued its sharp descent. At roughly 74 today, the ratio sits just above key support around 73, a level that has provided a floor on several occasions since 2001, with a break potentially signalling an extension towards the 2001 low at 65.

Given silver’s higher volatility and smaller market size, price adjustments tend to be explosive rather than gradual. The last week’s behaviour fits this pattern: modest gold gains were magnified threefold in silver, consistent with the “gold on steroids” narrative. 

Outlook: blue-sky territory but still supported

Silver’s break above resistance-now-support at USD 54.50, has pushed it into uncharted territory. While momentum has been extreme, the underlying drivers remain broadly intact:

• Physical scarcity persists across London and Shanghai
• US policy continues to concentrate inventory
• Macro conditions favour hard assets
• Industrial demand provides a structural floor
• Positioning remains far from euphoric

Volatility will remain elevated, and sharp swings are likely as liquidity normalises and short-term traders test key levels. But unless physical conditions meaningfully loosen — a scenario that looks unlikely near-term — silver’s repricing appears to be a rational response to a multi-year tightening cycle finally reaching its inflection point. Silver is no longer trading a story of potential tightness. It is trading the reality of it. In the short-term watch the gold-silver ratio as silver may need support from higher gold prices before potentially triggering the next leg higher.