The London silver market has been thrown into turmoil by a massive short squeeze, driving prices above $50 an ounce for only the second time in history and stirring memories of the billionaire Hunt brothers’ notorious attempt to corner the market in 1980. NB: I have been in this movie before Benchmark prices in London have soared to near-unprecedented levels over New York. Traders described a market where liquidity has almost entirely dried up, leaving anyone short spot silver struggling to source metal and forced to pay crippling borrowing costs to roll their positions to a later date. And the squeeze has become so dramatic that some traders have rushed to book slots in the cargo holds of transatlantic flights for bulky silver bars — an expensive mode of transport typically reserved for more valuable gold — to profit off the massive premiums in London.
There’s no modern-day equivalent of the Hunt brothers trying to corner the market today, traders and analysts say, pointing instead to a combination of factors that have sent prices soaring. But the chaos of the past two days bears many similarities with the 1980 squeeze, and in some ways is even more extreme. NB: Bullshit! This time its the overlevgered ETF’S that are sucking up the silver to put in their warehouses to cover sales to armature investors creating a short squeeze. This not not not a lack of silver due to manufacturing demand.
Liquidity Dries Up in London Silver Market
The recent price surge has been driven in large part by a wave of investment into both gold and silver, spurred by fears of rising debt levels in the West and devaluation of currencies — a move that has accelerated amid the US government budget standoff and shutdown.
As a result, inventories of silver in London have fallen by a third since mid-2021. However, a large part of that is held by exchange-traded funds. The remaining “free float” of metal available to provide liquidity to the London market — mostly held by big banks — has dropped to just 200 million ounces, down 75% from a high of over 850 million ounces in mid-2019, according to Bloomberg calculations. The surge in investor buying coincided this month with a sudden increase in demand from India. Indian buyers had been sourcing silver from Hong Kong, but shifted purchases during the Golden Week holiday, said Daniel Ghali of TD Securities. One Indian ETF even halted new investments on Thursday, citing a domestic shortage of metal.
In 1980, the market corner was broken by intervention from the exchanges. First Comex, then the Chicago Board of Trade — where the highest-ever recorded silver price of $52.50 an ounce was printed on Jan. 21, 1980 — imposed rules preventing traders from taking new positions and only allowing them to liquidate.
In today’s silver market, there is no such easy fix. Instead, the squeeze is likely to be resolved by more silver becoming available in the London market — either because ETF investors or other holders sell, or because traders are able to fly bars from other parts of the world to London in sufficient quantities to ease the tightness. “There’ll be a natural momentum for material to move back into London and hopefully things will normalize,” said Joseph Stefans, head of trading at MKS Pamp SA, one of the world’s biggest precious-metals refiners. “It’s just a question of mobilizing those balances that are sitting elsewhere in the world and moving them back to London.”
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