Silver leasing rates surge 39%! Banks refuse to lend, shocking Wall Street

In December 2025, an abnormal signal appeared in the global silver market: interbank leasing rates surged from 0.5% to 39%, the 1-year forward swap rate dropped to -7.09%, and buyers were willing to pay a 7% premium to acquire physical silver immediately. LBMA data shows that while nominal inventories are in the tens of thousands of tons, freely tradable stocks are only about 6,600 tons. Banks refuse to lend out silver, revealing a deadly crack between paper commitments and physical supply.

39% Leasing Rate: The Complete Collapse of the Bank Lending Market

(Source: ZeroHedge)

The silver leasing market is an unnoticed but crucial part of Wall Street’s financial system. Under normal circumstances, the annualized interest rate for banks to lend silver to each other is about 0.5%, supporting the futures market’s short-selling mechanism and short-term liquidity needs of industrial companies. However, in December 2025, this rate suddenly soared to 39%, a shocking figure indicating that the cost of lending out silver is higher than that of high-risk corporate bonds.

A 39% leasing rate sends a clear message: banks are unwilling and unable to lend out silver. Behind this refusal is a deep panic over physical shortages. The silver held by banks is not unlimited; once they realize that free market inventories are exhausted, every ounce of silver becomes extremely precious. Lending silver involves bearing the risk that the borrower cannot return it, and in the current environment, this risk has become unacceptable.

For speculators relying on borrowing to short, a 39% leasing rate is a disaster. Suppose a short seller sells silver futures at $60, planning to buy back at $50. But if they need to borrow physical silver for delivery, a 39% annual rate means the cost of holding it for a year is $23.4 per ounce. Even if the price drops to $50, after deducting borrowing costs, they still incur a loss. This cost structure effectively eliminates the economic viability of shorting, forcing shorts to passively accept rising prices.

More seriously, this rate spike is not a short-term phenomenon. If physical shortages persist, leasing rates could remain at extreme levels for months or even years. This would fundamentally change the logic of the silver futures market, transforming it from a two-way trading environment into a one-way long market. Wall Street’s “paper promises” are losing their meaning; only physical holdings are true wealth.

7% Spot Premium: The Critical Point of Trust Collapse

The 1-year forward swap rate dropping to -7.09% is another key signal. In normal markets, futures prices are usually slightly above spot prices, reflecting holding costs and time value, known as “contango.” But when the forward swap rate is negative, it indicates that the spot price is significantly higher than the futures price, a state called “backwardation.”

-7.09% swap rate means buyers are willing to pay a 7% premium over the futures price for immediate physical silver. This behavior is extremely abnormal in financial logic because it contradicts the principle of “a bird in the hand is worth two in the bush.” Buyers should prefer to delay delivery to preserve the time value of their capital, but now they prefer to pay a higher price immediately, which only shows one thing: they do not trust they will get the goods in 12 months.

The root of this trust collapse lies in the cracks between paper commitments and physical supply. Wall Street’s futures market is essentially a leveraged gambling arena, with most contracts settled in cash rather than physical delivery. But when buyers start demanding physical delivery, the system’s fragility is exposed. Nominally tradable silver may be many times the actual inventory; this “fractional reserve” model works well when confidence is high, but once a run occurs, the entire system could collapse rapidly.

A 7% premium also reveals another reality: large buyers are pre-positioning for future supply shortages. These buyers could be industrial firms, sovereign funds, or hedge funds, who, based on internal research, believe silver will become scarcer in the future and are willing to pay premiums to lock in supply. This behavior can become a self-fulfilling prophecy, as large-scale physical procurement further reduces available inventories and drives premiums higher.

6,600 Tons of Free Inventory: A Thin Safety Cushion

LBMA’s published London silver inventory data appears sufficient on the surface, with nominal total stocks reaching tens of thousands of tons. However, breaking down these inventories reveals a startling truth: the vast majority of silver is locked in ETFs, long-term investors, and industrial clients, leaving only about 6,600 tons of truly freely tradable stock available for market transactions and emergency dispatch.

What does 6,600 tons mean? At the current price of $75 per ounce, this is about $15.8 billion in market value. For a global market with daily trading volumes often in the tens of billions of dollars, this buffer is shockingly thin. In the event of a large-scale physical demand surge, these inventories could be exhausted within weeks. Worse, this 6,600 tons is not evenly distributed; some may be concentrated in a few large holders, making the actually available amount even smaller.

The locking effect of silver ETFs is a major reason for the reduction in free inventory. Silver ETFs like SLV (iShares Silver Trust) hold physical silver that does not re-enter the market unless there is a massive redemption. When investors buy ETF shares, the fund must purchase corresponding physical silver and store it in designated vaults, removing that silver from circulation permanently. As ETF scale grows, available inventories continue to shrink, exacerbating supply-demand imbalances.

Long-term industrial contracts also consume large amounts of inventory. Major manufacturers in photovoltaics, electric vehicles, and electronics often sign long-term supply agreements to lock in future silver supplies for years. These contractual stocks are recorded in London vaults but are effectively pre-committed and unavailable for emergency dispatch. When short-term supply tightness occurs, these inventories cannot serve as buffers.

Three Major Industrial Demand Absorbers

Photovoltaic Industry’s Silver Paste Revolution: The new generation TOPCon solar cells increase silver usage by about 30% per cell to boost efficiency. The explosive growth in global photovoltaic installations has led to a surge in silver demand.

Electric Vehicle Solid-State Battery Breakthrough: Manufacturers like Samsung are adopting solid-state batteries with silver-carbon composite layers, with each vehicle using up to 1 kilogram of silver—far exceeding the tens of grams used in traditional internal combustion engine vehicles.

AI Data Center High-Speed Connectivity: Training large language models requires tens of thousands of GPUs working together. Silver’s high conductivity makes it the preferred material for high-speed interconnects, with demand skyrocketing alongside AI computing power expansion.

Targeting $100 and the Variable of China Export Controls

Currently, silver prices have broken through $75 per ounce, and many investment institutions forecast reaching $100 within the next 12 months. These predictions are not blind optimism but are based on worsening supply-demand fundamentals. The inelastic nature of industrial demand means that even if prices rise to $100, photovoltaic and electric vehicle manufacturers must buy, as silver costs only a tiny fraction of end products, and halting production would incur losses far greater than raw material price increases.

China’s planned silver export controls starting January 1, 2026, are a potential black swan event. China is a major global silver producer, and if exports require special government approval, it would significantly tighten global supply. This geopolitical risk is already partially reflected in current prices, but if the policy is truly implemented and enforced strictly, prices could accelerate sharply. For industrial companies relying on Chinese supply, this is a life-or-death challenge.

However, the $100 target also faces risks. CME’s continuous margin hikes could trigger leveraged capital withdrawals, causing short-term crashes. Historical lessons from 1980 and 2011 show that regulatory interventions often mark the end of a bull market. For retail investors, the most rational strategy now is to wait and see, and act after the market clears. In an era when banks dare not lend out silver, that 7% premium might just be the first thunder before the storm.