Another hectic day in the London silver market saw physical silver prices drop from their recent peaks, hinting that the severe supply constraints might be easing a bit.
Spot silver prices fell by nearly 3.6% at one point but managed to bounce back somewhat, still approaching the all-time high of $53.55 per ounce that was reached during Tuesday’s early trading.
The liquidity crunch in London has led to a worldwide scramble for silver, pushing prices up to almost unprecedented levels compared to New York. Some traders are even booking cargo space on transatlantic flights for silver bars — a costly method usually used for gold — in hopes of cashing in on rising London prices.
These silver bars are expected to arrive soon, potentially impacting market dynamics further, though multiple traders have noted that arbitrage has already started to lessen the premiums. Even as the price gap between the two markets shrank and borrowing costs in London began to decline, both markets still operate at extreme levels.
On Tuesday, silver prices touched a level slightly over $1 above the historical high from a now-defunct contract managed by the Chicago Commodity Exchange Commission back in January 1980 when the Hunt brothers famously tried to dominate the market.
Last week, silver lease rates in the London market surged to over 30% for one-month borrowing costs. Even as of Tuesday, these costs remained significantly high, sitting around 14%.
Meanwhile, overnight lease rates, which had skyrocketed more than 100% late last week, were around 30% on Tuesday, according to a senior trader’s private comments.
“What you’re witnessing with silver is likely a mismatch between some paper contracts and the physical availability,” suggested Evi Hambro, BlackRock’s global head of thematic and sector investing, in a Bloomberg TV interview on Tuesday.
In recent weeks, increased demand from India has diminished the supply of bars available for trading in London, compounded by money inflow into silver-backed exchange-traded funds. There was also a significant transfer of silver to New York earlier this year, fueled by worries over potential U.S. tariffs, creating confusion between these trading hubs.
Officially, precious metals were exempted from taxation back in April, but traders remain anxious as the U.S. government’s Section 232 investigation into silver and other critical minerals continues. This investigation has reignited concerns over the possibility of new tariffs, which would tighten supply further.
At the same time, analysts from Goldman Sachs Group Inc. cautioned that because the silver market is relatively illiquid—one-ninth the size of the gold market—there is a risk of price correction.
“Without any central bank intervention to stabilize silver prices, even a slight dip in investment could lead to a significant correction, easing the tight conditions in London that have driven this recent surge,” Goldman analysts noted in a report.
The four major precious metals have seen price increases ranging from 58% to 82% this year, driven by a bullish commodity market. Gold has particularly surged, boosted by central bank buying, increased ETF holdings, and Fed interest rate cuts.
This demand for safe havens is also influenced by ongoing U.S.-China trade tensions, concerns about the independence of the Federal Reserve, and the looming threat of a U.S. government shutdown.
As of 7:04 p.m. in London, spot silver was trading down 0.9% at $51.89 per ounce, while gold rose by 1% to $4,151.60 per ounce after peaking at a record high of $4,179.70 in early trading.
The Bloomberg Dollar Spot Index dropped by 0.1%, while both platinum and palladium prices increased.
