In today’s issue:

  • Silver continues to face a liquidity squeeze
  • Tariff threats on Mexican and Canadian silver imports could further tighten supply
  • A historically high gold-to-silver ratio suggests silver is primed for a major breakout

The silver squeeze is no longer just a possibility – it’s happening.

The global silver market is tightening at an alarming pace. And London, historically the heart of precious metals trading, is feeling the strain more than ever.

Metal continues to flow from London to New York, where demand is stronger. But what started as a quiet shift of physical silver across the Atlantic has the potential to escalate into a full-blown supply crunch.

One of the clearest indicators of this strain is the surge in the implied lease rate for silver. This rate represents the estimated cost of borrowing silver.

With the current implied lease rate for silver now hitting 5.5%, it’s at some of the highest levels seen in decades. But as seen with gold, the actual lease rate can be almost double that. This indicates that those desperate for physical silver are paying a steep premium to secure it.

Such a dramatic rise in borrowing costs signals that physical silver is becoming increasingly difficult to source. In markets like these, tight supply often leads to explosive price action.

In fact, maybe silver prices are already responding.

Last week, silver prices surged for three consecutive trading sessions. This is a classic sign of short sellers being forced to buy back their positions at ever-higher prices. This pattern has played out in past silver bull markets, where sudden price spikes flushed out weak shorts and fuelled accelerated gains.

Source: Koyfin

Certainly, veteran market watchers believe silver is primed for a major move. Eric Sprott, a long-time silver advocate, suggests we could be witnessing a historic repricing event that could push silver to $250 or even $500 per ounce – up from today’s level of around $32.

While such a projection might seem extreme, the supply-demand imbalance suggests it may not be far-fetched.

Adding to the uncertainty, of course, the US recently imposed 25% tariffs on most goods from Canada and Mexico, key silver suppliers.

Mexico alone accounts for roughly 25% of global silver production. Any disruption to that flow could send shockwaves through an already strained market. Analysts at Societe Generale warn that a prolonged disruption could create a bottleneck, forcing buyers to pay hefty premiums for silver sourced outside North America.

Given how quickly silver is already moving from London to New York, these geopolitical developments could further accelerate the squeeze.

Meanwhile, industrial demand for silver is soaring, driven largely by the solar sector. Just two years ago, solar panel production accounted for about 12% of silver demand. Today, that figure has doubled to 25%. Projections from Sprott indicate that by 2030, solar panel manufacturers will require a huge 370 million ounces of silver annually.

Unlike investment demand, which can be cyclical, industrial demand is relentless. Companies can’t afford to wait for lower prices – they need silver now. With miners unable to ramp up production overnight, the only way to balance the market is through significantly higher prices.

Another critical signal flashing green for silver is the gold-to-silver ratio, which currently sits above 90:1. Historically, when this ratio has been this high, silver has followed with massive gains. With gold recently reaching new all-time highs, silver appears poised for a rapid catch-up rally.

But unlike gold, which is often locked away in central bank vaults, silver remains accessible to investors. TD Securities’ Daniel Ghali calls it “the squeeze you can buy”, emphasising that silver’s transition from a demand boom to a full-blown liquidity crisis is well underway.

“The pull of metal from London into the US has been so dramatic that it’s draining the world’s largest bullion vaulting system to such an extent that it’s actually disturbing day-to-day trading activity in physical markets,” says Ghali.

“London is trading extremely tight. We think it can get even tighter, and ultimately flat prices in silver need to rise in order to incentivise metal to come back into London from unconventional sources.”

According to Ghali, prices must rise significantly to attract silver back to London from unconventional sources.

Until that happens, the squeeze will only intensify.

So, to summarise:

  • Lease rates are skyrocketing, pointing to a tightening supply
  • Short-covering is driving rapid price moves, mirroring past silver bull runs
  • Industrial demand, particularly from the solar sector, is surging at a record pace
  • London’s liquidity crisis is forcing silver out of the world’s largest vaulting system
  • Tariff threats against Mexican and Canadian silver imports could disrupt supply chains further
  • The gold-to-silver ratio suggests silver is historically undervalued.

All these factors are converging, setting the stage for a dramatic repricing of silver. Whether this shift unfolds over weeks or months remains to be seen. Yet one thing is certain: silver supply is dwindling, and demand isn’t slowing down.

For those looking to position themselves ahead of the crowd, the clock is ticking.

Not sure where to start? My colleague John Butler has the perfect way to get you started. Go here for some worthy extra reading where he discusses silver’s big brother, gold, and why he sees both metals as on the up this year. Plus, find out how you can discover what he believes is the perfect gold and silver stocks to capitalise… Read more here.

Until next time,

James Allen
Contributing Editor, Fortune & Freedom