Physical Silver Squeeze Hits London Market as Spot Supply Dries Up

Market Overview

While major markets across Europe and the United States were largely closed on Christmas Day, notable moves still unfolded in foreign exchange and digital assets.

The Japanese yen extended its rally for a fourth consecutive session, gaining more than 1% cumulatively over four days. Cryptocurrencies also staged a modest rebound, with Bitcoin rising over 1% from its intraday low and briefly reclaiming the $88,000 level.

The most striking development in global financial markets, however, has emerged from the silver market. A severe physical silver squeeze is unfolding in London, as investors aggressively unwind paper silver positions and rush to secure spot metal. This has driven the key benchmark, the one-year silver swap rate, down to -7.18%, signaling an extreme spot premium.

Such a deeply negative swap rate reflects acute physical tightness in the silver market and has become a primary force behind silver prices pushing to fresh highs. Analysts note that amid rising leverage stress and intensified arbitrage activity, this distorted upward move in silver prices may persist.

Key Market Themes

● Bitcoin Fails to Deliver a “Christmas Rally”

Bitcoin is currently trading near $87,000, trapped within a $85,000–$90,000 range, and is down more than 7% year-to-date. Since retreating from its October all-time high, Bitcoin has fallen roughly 30%, marking its worst quarterly performance since Q2 2022, during the collapse of TerraUSD and Three Arrows Capital.

● Weak Demand at Japans 2-Year Government Bond Auction

Rising inflation expectations have fueled market speculation that the Bank of Japan may be forced into a more aggressive rate-hiking trajectory. Demand at Japans latest 2-year government bond auction was notably weak, with the bid-to-cover ratio falling to 3.26. As a result, yields on the tenor climbed to their highest level since 1996.

At the same time, the closely watched 10-year breakeven inflation rate has surged to its highest reading since records began in 2004, reinforcing concerns that the central bank may be falling behind the inflation curve.

BOJ Governor Kazuo Ueda stated that wage growth is steadily pushing inflation toward the 2% target, while real interest rates remain accommodative. If economic conditions evolve as expected, the central bank will continue along its tightening path. With U.S. tariff risks easing and domestic economic resilience improving, policy normalization is expected to support Japans long-term growth outlook.

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