An historic short squeeze in London is propelling the price of silver to new highs.
The annualized cost of borrowing the metal in the London market, known as the silver lease rates, skyrocketed more than 30% on a one-month basis last week, making it extremely expensive to roll over short positions, reports Bloomberg.
A short squeeze happens when traders who borrow an asset at a certain price in hopes of selling it for lower to pocket the difference are forced to buy back the assets they borrowed as momentum moves against them, triggering further rallies.
Some investors are moving to capitalize on the higher price of silver in London compared to New York – the premium was at about $1.40 an ounce on Monday – by booking cargo slots on transatlantic flights for silver bars, an expensive process that’s ordinarily used for gold.
Silver’s big rally may continue into next year, according to Bank of America analysts. The bank’s analysts just revised their end-of-2026 price target for silver from about $44 an ounce to $65 due to several factors, including market supply deficits and lower interest rates.
Silver’s rally follows gold’s massive rally this year. Other metals are also on the rise, including platinum and palladium. Investors appear to be piling into the metals as safer havens for wealth amid US-China trade tensions, a US government shutdown and Fed rate cuts.
Silver is hovering around $52.85 at time of writing, down from the all-time high of $53.55 an ounce in London on Tuesday, about $1 higher than the prior record high set in January 1980.
Meanwhile, Goldman Sachs Group analysts are warning investors that the price of silver may have a sudden correction.
“[The silver market] is less liquid and roughly nine times smaller than gold’s, amplifying price moves. Without a central bank bid to anchor silver prices, even a temporary pullback in investment flows could trigger a disproportionate correction, as it would also unwind the London tightness that drove much of the recent rally.”
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