Silver Rises Over 120% YTD 
Published: 09-29-2026, 04:21 pm
Most investors watch only the spot price ticker. But gold and silver trade across a whole curve of futures contracts. Every so often, that curve bends the wrong way. When the front of the curve trades above the back, physical metal in hand is worth more, right now, than a promise to deliver it later. That condition is called backwardation. It is rare enough in precious metals to deserve a closer look.
Key Takeaways
- Gold backwardation happens when spot or near-month futures prices trade above longer-dated futures. It flips the market’s normal cost-of-carry structure upside down.
- Backwardation signals that traders will pay a premium for metal right now instead of metal later. That premium usually points to tight physical supply.
- The clearest recent case ran from December 2024 through February 2025. Tariff fears pushed the COMEX-London EFP spread to roughly $50 to $60 per ounce. A record 151 tonnes of gold left London vaults for New York in a single month [World Gold Council] [LBMA]. A second, larger EFP shock hit again in August 2025.
- Silver went further. In October 2025, near-month silver futures traded about $2.88 above later contracts, the steepest backwardation in over 40 years, with London lease rates spiking to 39% [Benzinga].
- Backwardation is a stress signal, not a forecast. It rewards investors who hold allocated physical metal instead of paper claims on it.
What Is Gold Backwardation?
Gold backwardation is simple to define: spot gold, or the nearest futures contract, trades above contracts dated further into the future.
Under normal conditions, futures prices rise the further out you look, because holding physical metal costs money — storage, insurance, and financing all add up. That normal upward slope is called contango, the default state for gold and silver almost all of the time.
By contrast, backwardation inverts that relationship: buyers pay more for metal right now instead of paying more for later delivery. CME Group, which runs COMEX, puts it plainly in its own trader education material. A backwardated curve means spot sits above futures. That usually signals tight physical supply or high near-term demand [CME Group]. Someone, somewhere, needs real metal today more than a good price on metal three months out.
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How Is Backwardation Different From Contango?
Contango and backwardation describe the same curve, just tilted opposite ways. Contango reflects the ordinary cost of carrying gold or silver forward in time. Traders call the spot-to-future gap the “basis.” That basis should shrink to zero as a contract nears expiry, since the future and the physical metal become the same thing on delivery day.
Backwardation, however, breaks that pattern. Arbitrage desks normally profit by buying spot and selling futures. But when backwardation appears, that trade reverses or stops working. The premium for metal right now outweighs the cost of waiting. In other words, that reversal is the tell: something has overpowered the normal upward slope, and a real scramble for physical metal is underway.
Why Does Gold or Silver Go Into Backwardation?
Three conditions tend to show up together whenever gold or silver tips into backwardation. First, a delivery bottleneck: bullion sits in specific locations, and moving or recasting it takes time and money. Second, a sudden shift in where buyers want their metal. Third, a spike in lease rates, since borrowing physical metal to cover a short position gets expensive fast once the pool shrinks.
The 2025 EFP Episode
The December 2024 through February 2025 stretch showed all three conditions at once. Fears that US tariffs might apply to imported bullion made buyers rush to get metal onto US soil ahead of any new levy. That rush widened the gap between the COMEX futures price and the London spot benchmark. Traders call this gap the EFP, or exchange for physical. It reached roughly $50 to $60 per ounce [World Gold Council].
The World Gold Council’s own research team traced the physical flow. Gold moved from London through Swiss refineries. There, 400-ounce London bars were recast into the 100-ounce and one-kilogram bars that COMEX contracts require [World Gold Council]. The metal then moved onward into New York vaults. LBMA reporting put the January 2025 outflow from London vaults at a record 151 tonnes in a single month. It was the steepest monthly drop on record since LBMA’s data began in 2016 [LBMA]. The premium collapsed only in April 2025, when the White House formally exempted gold bars from the broader tariff push. Roughly 850 tonnes of bullion that had piled up in New York then began flowing back out [Reuters/Bloomberg via swissinfo.ch].
That 2025 episode was an EFP gap, not a textbook futures-curve backwardation. It measured the gap between two exchanges, not two delivery months on one exchange. But the underlying signal was identical. Paper claims on gold were suddenly worth less than the metal itself. The market priced that gap in dollars per ounce for anyone watching.
The August 2025 Repeat
The same mechanism flared up again just months later, and worse. In early August 2025, a Financial Times report revealed that US Customs and Border Protection had reclassified Swiss one-kilogram and 100-ounce gold bars under a tariff-liable code. New York futures spiked to a fresh record above $3,530 an ounce. The premium over London spot briefly topped $125, wider than the original scare, before easing toward $101 within hours [Reuters/Bloomberg via swissinfo.ch]. The White House called the ruling “misinformation” the same day and moved to clarify it by executive order, and the premium deflated almost as fast as it blew out. Two shocks, eight months apart, same mechanism. It takes only real uncertainty about which bars can legally cross the border, not a permanent tariff.
Silver’s Own Backwardation Episodes
Silver’s turn came on October 9, 2025, and it was no minor blip. The front-month COMEX contract traded roughly $2.88 above later-dated contracts, the steepest backwardation in over 40 years [Benzinga]. London silver lease rates, the cost of borrowing physical metal, spiked as high as 39% that day, against a normal rate below 1% [Benzinga]. London spot briefly cleared $50 an ounce, pulling further ahead of COMEX futures. CME raised margin requirements on both metals in response [Shanghai Metals Market]. It did not need a tariff catalyst. A thin LBMA float simply met strong delivery demand, the same mechanism described above.
Silver kept climbing afterward and touched a fresh all-time high near $121.62 an ounce on January 29, 2026 [CNBC]. Backwardation does not forecast a price target by itself, and silver gave back much of that spike within days. But the sequence matters: the curve flashed real physical tightness months before the record, not after it.
Is Backwardation a Bullish Signal for Gold and Silver?
Backwardation signals tightness. It is not a price forecast, and it does not predict which direction gold or silver moves next. Instead, it confirms something narrower: physical demand is running ahead of what paper and futures markets can price calmly.
Sustained backwardation has often matched up with real stress in the delivery system. That is a different signal than everyday noise in the contango curve, which mostly tracks interest rates and storage costs. It only appears when the plumbing between London and New York, or between an exchange and physical vaults, is truly strained. For that reason, it earns close attention from anyone who owns gold or silver. Still, watching the current gold price alone will not show you this signal; the curve itself has to be checked.
How Can Investors Use Backwardation Signals?
Investors do not need to trade EFP spreads directly to get value from watching them. Treat a widening EFP as a real-time health check on the physical market, the way a bond trader reads a credit spread without ever trading the bond itself.
The practical takeaway is simpler than the mechanics behind it. When paper claims on metal trade at a discount to the metal itself, that is worth sitting with. A futures contract, an ETF share, or an unallocated account is just a promise. And a promise is only as good as the other side’s ability to deliver under stress.
That is why owning your own, physical gold and silver avoids that question entirely. It does not depend on an exchange resolving a delivery squeeze in your favor, because there is no squeeze to resolve. The metal is already yours, sitting in a vault with your name on it.
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People Also Ask
Backwardation means a commodity’s spot or near-month futures price is higher than its price for later delivery months. It is the reverse of the normal contango structure.
Silver backwardation is episodic, not constant. Its steepest recent episode hit in October 2025, the worst in over 40 years. Check current futures curve data rather than assume that or any past episode is still active.
Not necessarily a total shortage. It signals a location or delivery bottleneck instead. Metal that buyers want is not moving fast enough to where it is needed, so they pay a premium for what is available now.
Yes. It can appear in any commodity market, including oil, whenever near-term physical demand outruns available supply. Gold’s version is rarer: its above-ground stockpiles are large relative to annual mine supply — which is exactly why it gets noticed when it happens.
SOURCES
1. World Gold Council — You Asked, We Answered: Is the Threat of US Tariffs Moving the Gold Market? (February 2025)
2. London Bullion Market Association — London Vault Data (January 2025 data, reported February 2025)
3. CME Group — What Is Contango and Backwardation? (accessed September 2026)
4. swissinfo.ch (Reuters/Bloomberg) — New York Gold Futures Spike Over Spot Price After Tariff Shock (August 8, 2025)
5. Benzinga — Silver: How Record Backwardation Could Push The Metal Into Triple-Digit Zone (October 13, 2025)
6. Shanghai Metals Market — Overseas Markets Witness Rare “Squeeze Scenario with Futures-Spot Misalignment” as Silver Prices Surge Toward Historic Highs (October 12, 2025)
7. CNBC — Silver Hits New All-Time High as Precious Metal Surges Again (January 26, 2026)
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions.
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