Silver has been following gold’s rally since the beginning of the year, and finally the prices have begun to catch up with the yellow metal.
Silver prices on COMEX have surged more than 74% since the start of the year, even outpacing gold’s return in 2025.
To put matters into perspective, in the last 30 days alone, silver prices on COMEX have surged by more than 21%.
Apart from expectations of further interest rate cuts by the US Federal Reserve and geopolitical tensions, the massive rally has been boosted by something very fundamental.
So, what is fuelling such a surge in prices?
Short squeeze
The price of silver has surged due to a massive, short squeeze and a shortage of available silver in London.
According to a FXstreet report, a short occurs when an investor sells a silver contract today, they agree to deliver silver at a predetermined future price, anticipating a market price decline.
If the price falls, the investor can sell the contract for a profit. Conversely, if the price increases, the investor incurs a loss. If no buyer is found for the contract, the investor is obliged to deliver the silver.
The London market is experiencing a severe liquidity shortage due to a short squeeze, which has rapidly inflated London benchmark prices. This has created a significant price discrepancy between the New York and London markets.
The London spot price recently surged, reaching a $3 premium over New York futures.
The significant disparity in silver prices has led to an unprecedented situation where some traders are chartering cargo ships to transport silver from New York to London, capitalising on the premium in the latter market, according to Bloomberg.
This logistical undertaking is highly unusual for silver, as its bulk and transportation costs typically restrict such arbitrage to the gold market.
“If we speak about the growing value of silver, then the supply shortage is really serious now. It is noticeably larger than in previous years,” Julia Khandoshko, CEO at the European broker Mind Money told Invezz.
This shortage is exacerbated by the growing industrial demand, especially from electronics, batteries, and solar panels, where silver is the most needed material.
Physical demand
Reports indicated that physical demand for silver has soared in India, the biggest consumer, fuelling further concerns about supply, especially in the London market.
“For example, lease rates (the cost of borrowing silver), which have made an unprecedented jump, point to liquidity issues in that market,” Thu Lan Nguyen, head of FX and commodity research at Commerzbank AG, said in a report.
“Meanwhile, declining inventories at COMEX since the beginning of the month may also indicate outflows toward London.
In late summer 2025, COMEX warehouse stocks of deliverable metal remained relatively stable, fluctuating slightly above 500 million ounces. Despite these moderate weekly swings, a sustained increase in inventory was not observed.
“This suggests to me that much of the stockpile is marked as ‘eligible’ but not truly for sale,” Ilir Salihi, founder and senior editor of IncomeInsider.org told Invezz.
London vault silver continues its month-over-month decline, according to LMBA data, further suggesting a scarcity of readily available bars.
India hit badly
There is an acute shortage of silver in Indian markets as prices have skyrocketed, and consumers pay a hefty premium on the imported price.
India is the biggest consumer of silver as the nation uses the metal in silverware, jewellery, coins, bars and industrial applications such as solar panels.
The country also relies heavily on imports with 80% of shipments meeting its overall domestic demand.
Indian jewellers have doubled their silver imports this year in preparation for the upcoming Diwali festival, a key buying season.
This increased demand from India has exacerbated a supply crunch, depleting physical silver stocks in Western vaults. Premiums for silver in India currently exceed 10% over global prices.
Investment strategies
According to Khandoshko, a very large volume of trade in silver is traded through derivatives, rather than through physical metal.
“This is important because this is the market where the price is formed.
“The situation is similar to what we saw during the pandemic, when supply chains broke down and many production facilities simply stopped due to a shortage of parts,” she said.
With the heightened risk of geopolitical tensions, silver’s demand is surging, as it is an essential component in a vast array of modern applications, from microelectronics to batteries, Khandoshko added.
Companies like Sony often purchase derivatives to hedge against the risk of a silver deficit, according to Khandoshko.
While many companies engage in this practice, the market size is relatively small, and physical silver resources are limited. This scarcity is a key factor driving silver’s growth, which is currently outpacing even gold.
To determine the optimal entry point for an investment without overpaying, Khandoshko suggested to acquire gold strategically with a long-term outlook, while silver purchases are more dependent on current market conditions.
This is a more volatile metal (silver), and it needs to be approached flexibly, choosing the moment when the market gives you the opportunity to enter without overpaying.
Meanwhile, Trade Nation’s senior market analyst David Morrison stated that similar to gold, silver’s daily MACD exhibits robust upside momentum, but it continues to extend into extremely overbought territory.
Silver is also in a bull market like gold.
Morrison added:
But silver is likely to become very volatile now, with big intra-day swings in both directions. Not for the faint-hearted.
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