The silver bullion market is entering uncharted territory. Over the past few days, several U.S. dealers and refineries have halted purchases of silver, and the effects are rippling across every layer of the precious metals industry — from local coin shops to sovereign mints.
A Perfect Storm Hits the Silver Supply Chain
The situation began late last week when major dealers announced they would no longer purchase junk silver (90%) or scrap silver for melting. Refineries, already facing months-long backlogs, have reached a breaking point.
In normal times, refiners purchase silver, process it, and resell the refined metal after a few weeks — financing that gap with short-term silver leases. But now, those lease rates have skyrocketed from under 2% to over 100% in just days. The cost of borrowing silver has become so prohibitive that refineries can no longer profitably process metal, effectively freezing parts of the physical market.
The Role of Lease Rates
Silver lease rates — the interest rate paid to borrow silver — are the backbone of global metal liquidity. As these rates surge, refiners, mints, and traders all face dramatically higher financing costs. Many institutions rely on these leases to hedge or temporarily hold metal; when the rate rises 30x overnight, operations grind to a halt.
This means:
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Refineries can’t afford to take in more material.
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Sovereign mints face higher input costs to produce new silver coins and silver bars.
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Dealers and wholesalers are caught in the middle — unable to replenish inventory at normal prices.
A Freeze Across Dealers and Refineries
Some large wholesalers and refineries announced Friday that they were no longer accepting 90% silver or sterling scrap, effectively pausing a major segment of the market. While some buyers — like SD Bullion — continue to make markets for physical silver, the strain is growing.
Over the weekend, the disconnect between spot and futures prices widened to nearly $3/oz, an extreme case of backwardation (where spot trades above futures). The physical market is commanding higher prices as available metal dries up.
New Silver Production Slows Down
Adding to the crisis, several sovereign mints have announced rising premiums and reduced output. With lease rates so high, even producing new coins has become expensive.
As SD Bullion’s leadership noted, the Royal Canadian Mint — which normally ignores lease rates in its cost models — recently saw rates jump from 12% to over 100%. Some mints have already completed their 2025 production runs and are holding off on additional output until financing conditions stabilize.
The result is a shortage of newly minted silver, compounding the tightness in secondary market supply.
Tariffs, Transport, and London’s Silver Drought
Part of the lease rate crisis stems from a shortage of physical silver in London vaults, the hub of global metal lending. Banks are trying to move silver from the U.S. (COMEX warehouses) to London — but the cost of transport and financing adds roughly $2.50/oz.
Even worse, there’s uncertainty around potential U.S. tariffs on UK imports, rumored to be 25–50%. If banks ship silver to London now, they risk paying hefty duties when bringing it back — adding another reason for hesitation.
Until that tariff situation clarifies, metal movement remains limited, keeping liquidity frozen.
Rising Demand Meets Shrinking Supply
Ironically, retail and investor demand for silver has surged amid this turmoil. SD Bullion reported weekend orders up 5–6x normal levels, even as the wholesale market seizes up.
With gold near record highs, many investors are turning to silver as the more affordable precious metal — creating the “perfect storm” of soaring demand and frozen supply.
What Comes Next?
The key variable is when lease rates normalize. Until then, the market faces:
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Rising premiums on all physical silver products.
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Delayed refinery operations and longer wait times.
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A potential short squeeze when the futures and spot markets reconnect.
If lease rates and tariffs remain unresolved, the next few weeks could bring even greater volatility — and a possible silver price surge as physical shortages deepen.
