Over the past week, several refineries and dealers have publicly limited or paused purchases of silver scrap, and in some cases restricted buying to Eagles and Maples. What’s becoming constrained is the system’s ability to process, finance and carry metal through this market.
We saw a similar situation play out in September 2025, so I wanted to understand what’s driving it this time and how the forces at play differ beneath the surface.
September’s Episode
When silver broke $40/oz in late August 2025, physical demand for silver surged causing a shortage of finished product, and triggered a wave of scrap silver (jewelry/silverware) selling from the public, overwhelming refinery pipelines. Several forces converged at once:
Retail traders piled into silver ETFs, which are backed by physical silver primarily held in London. That meant a rapid increase in demand for physical silver in London.
Festival season peaks in October/November, and so does the demand for gold and silver in India. India’s imports 80%+ of it’s domestic silver demand, further draining London of silver.
Higher prices encouraged the public to sell jewelry and sterling silverware. Refineries hedge metal during the refining process by leasing silver, increasing demand for leased silver in London.
The result was severe backwardation, with spot trading several dollars over futures, meaning silver today was worth more than silver tomorrow. Lease rates spiked to extraordinary levels (reports of over 30%), and the plumbing of the silver market seized up.
Normally, banks would arbitrage this by shipping metal from NY or Asia into London. This time however, tariff uncertainty made that trade risky. Without clarity on potential tariffs on silver, banks were unwilling to mobilize an adequate amount of metal to relieve the bottleneck.
This episode was driven primarily by uncertainty around tariffs and the subsequent inability to quickly move enough silver to London.
What’s Going on Now
On November 24th silver futures hovered around $50; this week we’ve traded over $95. Silver has ripped 90% in the past two-months and garnered the attention of investors globally.
This price action has driven renewed physical demand, the continued selling of scrap jewelry and sterling, and higher operational and financing stress throughout the supply chain.
Lease rates over the past couple months have remained elevated (roughly between 4-10% on a 1 month basis), and spot silver has traded at a much smaller discount to futures, even flat or extending into backwardation. While these moves aren’t as extreme as we saw in September, they signal underlying physical tightness.
So why are refineries and wholesalers tightening scrap purchases now?
After speaking with a range of market participants, several themes consistently came up.
Many refineries are seeing delays of 45-60 days, with some stretching longer. Silver is bulky, and a growing backlog quickly consumes physical space. Rising prices mean that same inventory is worth more, pushing site insurance limits. Offsite storage is an option, but adds costs and complications not built into earlier bids and are difficult to price in the current market. Given the amount of current metal flow, depositories can take weeks checking in metal or fulfilling shipment requests.
The final weeks of December are typically reserved for physical inventory counts and audits. Vaults, warehouses and refineries often pause processing to reconcile inventory, further extending existing backlogs.
Lease rates remain elevated and spot trades at a premium, meaning contango is much less (as of this week we were flat to futures, heading into backwardation). All of this means the cost of holding metal is more expensive. Bids can be adjusted to reflect this, but uncertainty around processing timelines, future lease rates, and spot volatility make pricing more difficult.
Spot jumping 90% over the past two months, futures margin hikes and an influx of scrap to purchase have combined to amplify an already capital-intensive business. Credit lines have not responded as quickly as the market, and liquidity needs to be managed with much greater caution given how fast things are changing.
Several market makers noted an increase of inbound material arriving in an unexpected condition. This increases labor requirements, slows check-in, and extends hedging exposure; this all adds to the cost of doing business and increases delays. Uncertainty around processing times makes it harder to price deals and manage cash.
The market is in new territory. Prices are moving quickly, cash is tighter, and no one wants to overextend. Many firms are choosing to slow down, work through existing backlogs, prioritize long-standing relationships and pass on marginal business. The goal isn’t maximizing short-term profits, it’s avoiding taking potentially catastrophic risks.
Similar Symptoms, Different Causes
While today’s market shares similarities with the September’s episode, the underlying drivers are different. This time, the bottleneck is less about an extreme bottleneck in London, and more about operational capacity, cost of carry and prudent risk control.
Refineries and wholesalers are managing their positions carefully, serving customers as best they can, while maintaining balance sheets that allow them to operate through volatility.
It's a fascinating time to be involved in precious metals, and with all the geopolitical and political uncertainty, it looks set to remain interesting for the foreseeable future.