Backwardation Versus Contango: Silver Market Terms Defined
At a Glance:
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- Backwardation and contango describe the relationship between spot price and futures prices.
- In backwardation, the spot price of an asset is higher than its futures price.
- Precious metals are usually in contango, which means futures are more expensive than spot price.
- On this page, learn more about the difference between silver market backwardation and contango.
Backwardation Versus Contango: Silver Market Terms Defined
The silver market in 2025 has been unlike any other in recent memory. Silver hit an intraday all-time high in October of 2025, briefly jumping over $53 per troy ounce amid a range of geopolitical and economic stressors, investor speculation, and heightened demand from the growing green energy sector.
But a unique set of market conditions may drive silver prices even higher, according to some analysts.
This is because the silver market is in a state of deep backwardation. Backwardation refers to a market condition in which the spot price of an asset, or the price for its immediate delivery, is higher than the price of its futures. This is in contrast to contango, which describes a market where the asset’s futures are worth more than its current spot price.
Precious metals like silver are almost always in contango, because it costs money to store and secure physical metals, and the price of a futures contract considers these heightened costs of holding the asset being traded. In a typical market, the spot price of silver is less expensive than silver futures, since sellers of physical silver don’t need to account for costs like storage, security, and insurance like futures sellers do.
Silver is currently in deep backwardation, which means that futures prices are considerably lower than the current spot price of silver. While this setup is very rare for precious metals, it tends to occur during periods of record demand for physical metals. When investors and industries need physical silver now, immediate physical delivery can command a higher premium than futures contracts, even though futures prices include the embedded cost of storage and security.
On this page, learn more about the difference between backwardation versus contango – and what silver’s state of deep backwardation could mean for markets and investors.
What is Silver Backwardation?
Backwardation is a market condition where the price of immediately buying an asset, often called its spot price, is lower than its futures price, or the price of purchasing that asset now for delivery at a later date. Backwardation is uncommon in the precious metals market, since the futures price of a metal accounts for the costs of storing and securing that metal until delivery is made.
When silver is in backwardation, this means that the price of buying silver for immediate delivery is higher than the cost of purchasing it for later delivery, also known as a silver futures contract. Silver in backwardation suggests that demand for physical silver is extremely high, so high that traders and institutions are willing to pay a premium in order to have it immediately delivered.
Backwardation Versus Contango
Contango is the typical way that the silver market functions. When in contango, the spot price of silver is lower than the cost of silver futures. This is how the silver trading market usually works, because the prices of silver futures account for the costs associated with holding the metal, including storage, security, and more.
It is highly irregular for silver to enter a state of backwardation, which is exactly what happened in 2025. In October of 2025, silver entered deep backwardation to a degree not seen in decades. There are numerous causes to silver’s transition into a state of backwardation, and this market condition could have a number of impacts on both the price of silver and the state of the larger market.
Why is Silver in Deep Backwardation?
Demand for immediate delivery of physical silver can drive the silver market into a state of backwardation. In order for the spot price of silver to push higher than the price of silver futures, there needs to be a significant increase in demand for immediate delivery.
While demand from retail investors can drive the spot price of silver higher, backwardation to this degree is typically only caused by a combination of institutional investing and industrial demand. London exchanges shipped a large amount of silver to Americans earlier this year as markets braced for a series of tariffs that may have impacted the silver market.
Now, a physical shortage of silver in London means higher demand from institutions, which has resulted in hefty competition between investors, industries, and precious metal refiners for physical silver. This has in turn driven the price of physical silver higher than the value of silver futures contracts.
This reality is strongly reflected in one-month silver lease rates, which describe the interest rates charged to borrow silver for one month. These rates tend to sit comfortably at or below 1%, but London’s lease rates jumped to a peak of 39% in October, signaling historic demand for physical silver.
Has Silver Been in Backwardation Before?
Although it is rare, silver has been in backwardation before. Backwardation typically happens before and during a major spike in the spot price of silver, making it a powerful signal for heightened demand for physical silver. Silver slipped into backwardation in 1980, 2011, and during the COVID-19 pandemic in 2020.
October 2025’s silver backwardation is the most extreme it’s been since the 1980s, when the Hunt family attempted to corner the silver market and drive prices higher. Because silver prices rose so rapidly in 1980 during the Hunt brothers’ scheme, demand for physical silver spiked among institutional investors, retail investors, and industrial players. The result was a substantial state of backwardation.
1980 and the Hunt Brothers Silver Run
The Hunt brothers, a family of wealthy men, began buying large amounts of silver in 1979 in what has been characterized as an attempt to corner the silver market. Their hope was that amassing a large enough quantity of silver could drive the metal’s price higher, netting them billions of dollars in profits.
Their plan was largely successful. In January of 1980, silver prices hit an all-time high that wouldn’t be eclipsed until October 2025. Because prices rose so rapidly, demand for immediate physical silver deliveries spiked in industrial markets. At the same time, exchanges that needed to settle futures contracts also needed a large amount of physical silver.
This series of events led to deep silver backwardation, since the spot price of silver jumped significantly higher than silver futures prices. Until the invention of a new COMEX rule led to a silver price collapse months later, competition for physical silver led to a cyclical pattern, driving prices higher and triggering a series of silver short squeezes.
Effects of Silver Backwardation
Backwardation can create unpredictable and volatile market dynamics, especially for the average retail investor.
Most notably, the heavy demand for physical silver that drives backwardation leads to a strain on the supply of highly pure silver products like silver bars and sovereign coins. Large refiners often melt these products to create exchange-ready silver bars, meaning that retail investors could end up competing with major industry players like refiners and institutional investors for these limited physical products.
This can lead to higher premiums for high-purity products, since many of the market’s largest demand drivers are industries, exchanges, and refiners who need high-purity silver.
Rising silver prices can also trigger a silver short squeeze, especially if this condition is paired with the rising costs of leasing silver facing markets in 2025. A silver short squeeze occurs when rising silver costs force short traders, or traders betting that the price of silver will decrease, to buy more silver in order to cover their losses.
A short squeeze can drive silver prices even higher, since short traders buying more silver to cover their losses causes the value of silver to rise further. This can be a vicious cycle that can eventually force short traders to close their positions, sending the spot price of silver even higher.
2025 Silver Market Analysis – Here’s What Silver Backwardation Means For Traders
At this point, it’s tough to predict with certainty how the deep backwardation of the 2025 silver market will impact silver prices. What we do know is that a combination of exchange and industrial demand is driving the spot price of silver higher than the price of silver futures in a rare phenomenon known as backwardation.
Retail premiums for high-purity products like silver bars and sovereign silver coins are poised to rise as investors contend with large industrial and institutional buyers. Meanwhile, low-purity silver items such as junk silver, which are not as useful for refiners due to their reduced purity, could see a “race to the bottom” as dealers lower premiums in an attempt to liquidate that remaining stock.
As far as prices themselves go, it could be anybody’s guess. Demand for physical silver remains elevated, and speculation surrounding China’s new green energy initiative could drive demand even higher in the coming months.
Final Thoughts: Silver’s Deep Backwardation
The silver market entered a state of backwardation in October of 2025. Silver is usually in contango, which means that the spot price of silver is lower than silver futures prices, since futures account for the cost of holding and securing silver. Because of mounting demand for physical silver and growing rates for borrowing silver in London, silver’s spot price is now considerably higher than the price of silver futures.
The difference between silver’s spot price and silver futures prices, also known as backwardation, is the most extreme it’s been in decades. The result? A historic silver market with a range of potential consequences for institutional investors, retail investors, and industries.
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About The Author
Michael Roets
Michael Roets is a writer and journalist for Hero Bullion. His work explores precious metals news, guides, and commentary.