London’s Silver Is Running Out of Room

In October 2025, silver lease rates (the cost of borrowing physical silver for short periods) spiked to levels widely reported at around 39%, among the highest on record. The normal rate is below 1%. A market that, by all appearances, had felt well supplied for years had suddenly become one where metal appeared impossible to source. The squeeze lasted weeks, drove silver to the January 2026 all-time high of $121.67, and then eased as metal flowed back into London from New York.

The World Silver Survey 2026, released on April 15, provides the most authoritative account of what actually happened and why it matters that the conditions which caused it have not fundamentally changed.

I covered the stagflation data in the first article from this issue, and the COMEX delivery clock in the second. This article covers a third force: the physical silver market in London, and why the most authoritative annual data source in the silver market describes the current environment as “the era of virtually unlimited silver liquidity is gone.”

COMEX Sets the Price. London Moves the Metal.

To understand why London vault levels matter to silver investors, it helps to understand what London actually is in this market.

COMEX in New York is the primary futures exchange: where price discovery happens, where traders go long and short, where the paper price is set. The LBMA in London is the primary physical OTC market: where large-scale silver is actually transferred between banks, refiners, ETPs, industrial users, and sovereign entities. The two markets are linked but separate. COMEX plays a central role in price discovery, while London is the primary hub for physical OTC transactions.

When London’s available physical inventory tightens, the ability of market participants to source metal on short notice diminishes. Lease rates spike. The gap between the paper price and the cost of actually obtaining physical silver widens. That is not a theoretical dynamic; it is what happened in October 2025, and the World Silver Survey 2026 now gives us the full picture of how thin the market had become before it did.

What the World Silver Survey 2026 Confirms

The WSS 2026 documents that by end-September 2025, the silver genuinely available for day-to-day OTC operations and leasing in London (the “free float”: not allocated to ETPs, not backing structured products) had fallen to an estimated ~136 Moz (a record reported low per the WSS 2026) (4,234 tonnes).

That number needs context to land properly. Daily OTC trading turnover in the London market averaged approximately 450 Moz per day in 2025, according to LBMA data cited in the World Silver Survey 2026. This reflects gross trading activity, not physical settlement volumes. The free float was less than one-third of a single average day’s trading turnover, though this compares a stock against a flow — the point is that the available buffer was very small relative to normal market activity.

The squeeze that followed was triggered by a surge in Indian demand in October. The WSS 2026 describes it precisely: “The squeeze that ensued became self-fulfilling, as shorts had to cover and were forced to pay unprecedented rates for near-term liquidity. A market that a year earlier felt well supplied had become one where metal appeared impossible to source.”

What caused the free float to shrink so dramatically before October? Three forces converging simultaneously:

First, global deficits. Five consecutive years of demand exceeding supply drew down above-ground stocks steadily. The WSS 2026 confirms the 2025 deficit at 40.3 Moz, the fifth consecutive shortfall.

Second, tariff-driven arbitrage. Concerns about potential US tariffs on silver saw approximately 225 Moz flow from London into CME vaults between December 2024 and early October 2025. London’s pool shrank as New York’s swelled.

Third, ETP growth. Strong inflows into silver ETPs meant that an ever-larger share of London’s headline inventory was allocated and inaccessible. By end-September 2025, physically backed products accounted for 83% of London inventories, leaving only 17% genuinely available for market operations.

Where Things Stand Now

The acute October stress has passed. Metal flowed back into London; lease rates have fallen from their 39% peak to approximately 2–3% by mid-Q1 2026, and lower since. The WSS 2026 notes the market “feels similar to historical norms” at the time of writing.

The February 2026 LBMA vault data, the most current snapshot available, shows total London holdings of 27,065 tonnes (870 Moz), down from 894.4 Moz at end-2025. The non-ETP share has recovered to approximately 24% of London holdings, well above the 17% that triggered October’s squeeze.

The WSS 2026’s own assessment is worth quoting directly in its substance: the market has clearly entered an era of reduced stocks. Tightness will not be constant, but liquidity will generally be thinner, lease rates more volatile, and price moves likely to be larger than investors have grown used to.

The crucial point is that the structural conditions that made October possible (persistent deficits drawing down global stocks, ETP growth locking up an ever-larger share of London’s inventory, and a tariff threat that could re-trigger New York arbitrage at any moment) have not been resolved.

The July 13 Risk

One forward-looking factor that the newsletter covers in this issue deserves mention here: the Section 232 bilateral agreement deadline falls on July 13, 2026, the 180-day window from the January 14 critical minerals proclamation. If negotiations are deemed insufficient, new tariffs on silver imports become the default outcome.

The WSS 2026 confirms that tariff fears drove the Q4 2024 to October 2025 London-to-New York arbitrage that depleted London’s free float to record lows. London is already 24% below its 2020 peak. A second arbitrage-driven drain arriving at this lower starting level would encounter a much thinner buffer than October 2025 did.

This connects directly to Catalyst #58: London Bullion Market Stress Indicators from “Silver Rising”, which identified the combination of declining London inventory, rising ETP allocation, and external shock risk as the mechanism for acute physical market stress. October 2025 was the first activation. The WSS 2026 confirms that the underlying conditions remain structurally present.

The Outlook

Silver trades near $78.10 as of April 23, approximately 36% below the January 29 all-time high of $121.67. The Hormuz blockade remains in force; Iran has stated it will not reopen the strait while the US Navy continues intercepting vessels, though ceasefire talks are ongoing.

The physical market in London is not in acute stress today. The WSS 2026 confirms conditions have normalised since October. But normalised does not mean resolved. The projected sixth consecutive annual deficit of 46.3 Moz for 2026 continues drawing down the global inventory buffer. The free float share, at 24%, is above the October trigger level, though the trigger level itself is not a fixed number. It depends on demand. A reactivation of the tariff-driven arbitrage, or another surge in Indian physical demand, or both, could compress it faster than the market currently prices.

The full Silver Catalyst Issue #13 covers seven more Deep Dives beyond this one: the stagflation thesis confirmed in March CPI at 3.3%, the Hormuz blockade and the new mining cost floor it creates, the COMEX inventory situation with May delivery First Notice Day approaching, the 64% semiconductor revenue surge and its industrial silver implications, the Section 301 trade investigation and tariff risk to Mexico’s 185–200 Moz annual supply, the Samsung solid-state battery commercial deployment timeline, and the Warsh Fed confirmation delay and the fiscal dominance argument for why this inflation is structurally difficult to contain. For anyone tracking silver’s performance throughout 2026 as these dynamics develop, I encourage you to get “Silver Rising” with complimentary 2-week access to the Silver Catalyst newsletter.

Thank you.

The Silver Engineer