(Kitco News) - Silver prices continue to trade near their highest levels in 14 years as investment demand becomes a driving force in the marketplace. However, silver’s industrial component continues to attract significant attention and volatility.
Late last week, President Donald Trump issued an executive order clarifying tariff exemptions for some important metals, including gold, graphite, tungsten, and uranium. However, analysts note that silver did not make the official list.
This uncertainty has caused a sharp rise in silver’s lease rate. Bernard Dahdah, Precious Metals Analyst at Natixis, said that silver’s go-forward rate is at unusual levels, currently in negative territory around 1.2%.
“In layman’s terms, it means that the party borrowing silver is actually willing to pay rather than earn interest from the counterparty with which it will swap its USD for silver. Meanwhile, those leasing out silver are earning around 5.5% on a 3-month basis,” he said.
Dahdah noted that lease rates in silver started to rise again—highlighting renewed tightness in the marketplace—after the precious metal was added to the U.S. government’s critical minerals list last month.
He added that silver’s new status could attract the attention of President Donald Trump, who ordered an investigation into critical minerals in April.
“Since this announcement, the silver Exchange for Physical (EFP, COMEX vs. London spot) has gone from a historic average of 25 cents to as much as $1.1/oz, suggesting very strong U.S. demand for the physical material. This demand for physical is in turn reducing the pool of available leasable material in London and, as such, lifting silver’s lease rate,” he said.
According to reports, this is the fifth time this year that silver lease rates have spiked.
Some analysts note that this tightness in the silver market is not surprising, as physical inventories within the London Bullion Market Association are at exceptionally low levels.
In a recent note, commodity analysts at TD Securities said that silver inventories could be depleted within seven months. If investment demand in silver-backed exchange-traded funds picks up, those stockpiles could dry up within four months.
Tightness in the market can also be seen in the arbitrage between futures contracts in New York and London spot prices. December silver futures are currently trading 55 cents above spot.
Although tightness in the silver market could persist, Dahdah said that he expects lease rates to ease within the next month. While the risk of silver being subject to tariffs is elevated, some analysts believe this is unlikely to happen.
Domestic silver production only accounts for three-quarters of domestic demand, and the U.S. needs to import about 1,000 tonnes of silver a year.
“The Section 232 investigation on critical minerals is scheduled to be released around mid-October and is likely to include recommendations on silver (which might include adding tariffs, or not),” Dahdah said. “This could be the point after which the silver lease rate retreats rapidly. An earlier public statement of reassurance would have the same impact.”
