Every so often, the metals markets flash a giant, neon sign that most people miss entirely. Right now, that sign is glowing so brightly you’d have to try not to see it.

Gold is sitting calmly in contango… while silver is in one of the most extreme backwardations of the century.

That split-screen alone should make every serious investor sit up straight. Because when gold and silver diverge this violently, it means stress is building somewhere deep in the system — and someone is scrambling for metal right now.

Let’s break down what’s happening, why it matters, and what the LBMA and Shanghai are quietly telling us about 2025.

The Quick Refresher: Contango vs. Backwardation

Not to worry — I’ll keep this simple.

Contango is the “normal” state of affairs. Futures trade above the spot price because carrying metal incurs costs. Storage, insurance, financing — it all adds up. Any futures contract has to price that in because no one is going to hold the underlying metal for you for free. They’ve got to pay those storage, insurance, and financing costs and will pass them through to you.

Backwardation is the exact opposite — and the market equivalent of a scream.

That’s when spot trades above futures. In precious metals, that only happens when someone, somewhere, absolutely must have physical metal now and is willing to pay extra for immediate delivery.

Back­wardation in silver is rare.

Deep backwardation is unheard of outside genuine shortage moments.

Which brings us to 2025…

Gold in 2025: Calm, Cool, and Collected

Gold is behaving as it typically does. It’s in contango — politely, predictably, boringly so.

Even with sovereign demand surging higher and spot prices hitting new highs in nearly every currency worldwide, the gold market’s infrastructure remains rock-solid. London has metal. Shanghai has metal. Central banks have metal (boy, do they ever, as we’ve chronicled all year long).

Carry costs are stable. Futures trade higher than spot. The system is humming.

Nothing to see here… at least on the surface.

Silver in 2025: A Full-Blown Physical Squeeze

Now contrast that with silver.

Silver has broken into one of the sharpest backwardations in modern history. Not for a day or two — for weeks, across two continents.

Spot is running above futures in London.

Spot is running above futures in Shanghai.

On October 10th, London’s annualized backwardation rate hit 20%. Silver lease rates? Over 30%. That’s silver screaming, “I’m on the back of a milk carton — good luck finding me!”

The December 2025 contract trades below spot. As I look over at my monitor while writing, spot silver is trading at $50.93, while the December silver futures contract is trading at $50.73.

That's the kind of thing that happens when vaults are emptying, industrial users are panicking, and traders are literally melting coins to keep refiners supplied.

This isn’t arbitrage. This isn’t paper games.

This is a physical shortage.

London: The LBMA Gets Exposed

When the LBMA cracks, it cracks quietly… and then all at once.

London is the global plumbing for physical silver. It’s where the world goes for 1,000-ounce bars, ETF allocations, and large commercial orders. But suddenly, everyone is discovering the same problem at the same time:

There isn't enough metal to go around.

The LBMA officially reported 844,105,000 ounces as its official vault holding as of 31 October 2025. But that’s not the whole story. Most of that is already allocated to ETF and institutional holdings. 

So analysts estimate London’s eligible silver (free float) has crashed to only 155 million ounces — levels we haven’t seen in years. The LBMA doesn’t report on free float; analysts have to estimate it.

In recent years, the estimated free float available for delivery has fallen as follows:

• Late 2020: Approximately 300–330 million ounces.
• 2021: 250–300 million ounces.
• 2022-2023: Declines to 175–200 million ounces.
• Late 2025: Around 155 million ounces.

The spot premium over futures continues to widen.

The Exchange-For-Physical (EFP) spread has turned negative, a phenomenon that typically only occurs when the system is under severe duress. The EFP mechanism enables large trades to be efficiently transferred between futures and physicals, without distorting exchange prices. The spread is a direct gauge of the relative tightness or ease in converting paper contracts into metal.

Refiners can’t keep up. Wholesalers are running dry. Allocators are bidding for immediate metal, even at sharply higher prices.

We’re back to Hunt brothers–era dynamics… but this time, the driver isn’t a market cornering attempt.

It’s just pure, raw demand colliding with an underbuilt supply chain.

Shanghai: An Even Louder Alarm

While London is struggling, Shanghai is ringing the bell even harder.

Shanghai Futures Exchange vault inventories have collapsed to a 21-month low. Spot premiums in China surged as high as $1.80 per ounce above London prices.

China is draining its own market just trying to keep up.

And when the premium becomes high enough?

Theoretically, silver would start flowing out of China and into whichever market is willing to pay the most, regardless of whether tariffs are imposed or not.

This is real arbitrage in physical metal, not paper promises.

However, China has recently imposed tighter export controls on silver. It hasn't completely stopped silver from moving to London. But it now requires Chinese exporters to obtain special export licenses and comply with stricter regulations, with the explicit goal of restricting the outbound flow of key resources.

Effective as of the beginning of this month, these new export rules mean any silver bullion leaving China is subject to additional government scrutiny. This is the same regulation China has used in the rare earth minerals and other critical resource sectors.

Gold Isn’t Backwardating — But Don’t Ignore the Pressure

Gold, to its credit, is still in contango everywhere — even in China.

But don’t ignore the warning signs:

• Shanghai gold premiums have been rising all year.
  
  
• Central banks continue hoovering up every bar they can find.
  
  
• Wholesale demand in China has reached its highest level in over a year.

No backwardation yet… but the pressure is building under the floorboards.

What This Divergence Really Means

When gold is calm and silver is panicking, the message is clear: we’re no longer in a normal market.

Backwardation means that the spot market is becoming the primary mechanism for price discovery. Futures no longer lead — physical demand does.

Every contract expiry becomes a forced convergence. Shorts have to scramble. Paper gets dragged up to physical.

And if backwardation persists — as it has — we’re not looking at a blip.

We’re looking at a structural shortage:

• Underinvestment in mining
  
  
• Shrinking above-ground inventories
  
  
• Surging industrial demand
  
  
• Exploding hedging demand
  
  
• Global logistics bottlenecks
  
  
• Capital is fleeing the dollar into hard assets.

Silver is the weak point in the system. It’s the first metal to crack when demand overwhelms supply.

Gold will follow later — usually at a much higher price.

Wrap Up

The metals markets are telling you exactly what’s happening:

Gold is acting like the world’s preferred reserve asset. Silver is acting like the world’s most stressed industrial metal.

One is calm; the other, on fire.

Historically, when silver blows first, gold detonates later.

If you’re a long-term metals investor, the message is simple: Stay alert. Watch the spreads. Follow the physical premiums.

Because the market isn’t whispering anymore. It’s screaming.