The Squeeze and the Record Were Four Months Apart

Silver trades near 53 dollars an ounce today. On the twenty ninth of January it reached 121.67, the highest price ever recorded. The move took nine months and it is worth being precise about each leg, because the usual telling gets the order wrong.

The squeeze came first and it came in London. On the ninth of October last year the cost of borrowing silver for one month reached about thirty nine percent, against a normal rate below one percent. That is not a price signal. That is a market in which the metal physically is not there. Of the silver sitting in London at the end of September 2025, roughly eighty three percent was spoken for by exchange traded products, leaving a free float of about 136 million ounces.

The record came almost four months later, by which time lease rates had collapsed back to two or three percent. What ended it was not a change in the metal. On the twenty seventh of January the exchange raised the speculative margin requirement from nine percent to eleven. The high printed on the twenty ninth. On the thirtieth silver opened around 115 dollars and closed near 85, a fall of twenty six percent in one session.

The Historical Echo

The last time this metal did something comparable, the same lever ended it.

Nelson Bunker Hunt and his brother Herbert held about 123 million ounces of silver at the end of July 1979 and roughly 195 million at the start of January 1980, about half of it in futures, amounting at times to near seventy percent of all open interest on the New York exchange. Silver was about nine dollars an ounce on the thirty first of July 1979 and touched roughly fifty on the eighteenth of January 1980.

Then the rules changed. On the seventh of January 1980 the exchange imposed position limits on silver futures, and on the twenty first restricted trading to liquidation orders and genuine hedging. Nothing about the world's silver supply had altered. The exchange had made it impossible to keep adding to the position.

By the twenty seventh of March the brothers could not meet a margin call of about a hundred million dollars. Their broker liquidated the futures that day and was left with an unsecured debit of roughly 122 million. Silver fell from 21.62 to 10.80 in the session. A consortium of thirteen banks then lent 1.1 billion dollars to a Hunt family oil company to prevent the failure from spreading.

The part that matters for an owner of metal is what the high price did to supply. Melted coin scrap rose from 25.5 million ounces in 1979 to 55 million in 1980. Salvage of household silverware and heirlooms rose from 80.5 million ounces to 121.5. Combined salvage exceeded new mine production for the first time in history, and industrial consumption fell by nearly eighty million ounces in a year.

Where Patient Capital Is Positioning

That mechanism is restarting now, quietly, and it is the most important number in this year's accounts. Recycling is forecast above 200 million ounces for the first time since 2012. The high price is reaching into drawers and cupboards exactly as it did in 1980.

The demand side has already turned. The Silver Institute expects industrial fabrication to fall about two percent this year to a four year low, with photovoltaic demand down roughly nineteen percent as manufacturers thin the silver paste in each cell. Jewellery is forecast down nine percent. And yet the market still runs a deficit, forecast at sixty seven million ounces, the sixth consecutive one. What is holding it there is physical investment, up about twenty percent.

The deficit is no longer driven by industry buying silver to use. It is driven by people buying silver to keep, while the industrial buyer engineers his way out.

For capital with a long horizon the distinction worth holding is between scarcity of metal and scarcity of metal in a particular vault on a particular morning. London's free float at the 2025 low was about seventeen percent of what the vault reports counted. Those two numbers describe completely different things, and only one of them can be squeezed. The other lesson is older and harder. A price that doubles because the float is thin will summon scrap, thrift the industrial user and invite an exchange to change its margin rules, and all three of those are permanent while the squeeze is not.

The Capital Memo