London’s Silver Market in Disarray Amid Short Squeeze

(Bloomberg) — The silver market in London has been drastically affected by a significant short squeeze, pushing prices past $50 an ounce for only the second time ever. This situation has drawn parallels to the Hunt brothers’ infamous attempt to control the market back in 1980.

Base prices in London have surged to unprecedented heights, even eclipsing those in New York. Traders are noting that market liquidity has nearly vanished, leaving those holding short positions in a tough spot as they scramble to acquire bullion while facing exorbitant borrowing costs to postpone their trades.

The squeeze has become so intense that some traders have resorted to booking space on transatlantic flights for heavy silver bars—transport usually reserved for gold—just to capitalize on the increased premiums in London.

Market experts believe there isn’t a modern parallel to the Hunt brothers’ market cornering. Instead, they’ve pointed to various factors contributing to the current price escalation. However, the recent turmoil echoes the financial crisis of 1980, possibly in even more extreme ways.

“Nothing like this has ever happened before. What we’re witnessing in silver is entirely unique,” remarked Anant Jatia, chief investment officer at Greenland Investment Management. “Currently, there’s no liquidity available.”

For over a century, London has been the heart of the precious metals market, with a select group of banks setting global reference prices based on gold and silver bars stored in local vaults. Each day, once trades are settled, secure trucks transport the bullion between vaults.

This latest price increase has been largely triggered by a surge in investment in both gold and silver, driven by rising debt levels in the West and apprehensions about currency devaluation—concerns that have been intensified by the looming U.S. fiscal impasse and possible shutdown.

There are additional factors specific to silver as well. Recent weeks have seen a spike in demand from India coupled with a declining supply of available bullion and worries that tariffs might impact the metal.

The silver market relies on extensive stockpiles stored in London to maintain liquidity, yet these have been progressively diminished over the years. Mine production has fallen short of meeting the rising demand from both investors and various industrial uses like solar panels, resulting in ongoing supply deficits. This year, worries about tariffs prompted a flurry of shipments heading to the United States.

Consequently, London’s silver reserves have dropped by a third since mid-2021. Most of this stock is held within exchange-traded funds. The available “float” for the market has plummeted by 75%, shrinking from over 850 million ounces in mid-2019 to just around 200 million ounces, as calculated by Bloomberg.

Investor demand this month coincided with a notable increase in purchases from India. Indian buyers, initially sourcing silver from Hong Kong, shifted their purchasing habits during Golden Week, according to Daniel Ghali of TD Securities. On Thursday, an Indian ETF halted new investments, citing a shortage of metals available in the country.

The London Bullion Market Association has acknowledged the tightness in the silver market, stating they are closely monitoring the situation.

Prices have set multiple records in just a couple of days. London’s silver auction—an event that has been determining prices since 1897—hit $50 on Friday for the first time ever. Spot prices in London surpassed New York futures by as much as $3, a disparity reminiscent of the Hunt Brothers crisis. Borrowing costs from the Bank of London have skyrocketed over 100% on an annualized basis, with some market veterans believing they exceed those from 1980.

Amid this turmoil, the bid-to-bid spread for London silver jumped from the typical 3 cents an ounce to over 20 cents an ounce. “Banks seem hesitant to quote each other, leading to widely varying quotes and considerable illiquidity,” explained Robert Gottlieb, a former precious metals trader and managing director at JPMorgan Chase.

In 1980, a segment of the market collapsed after exchange intervention. Both Comex and the Chicago Commodity Exchange Commission imposed regulations that prohibited traders from taking new positions and only permitted liquidations.

Addressing today’s silver market challenges isn’t straightforward. The squeeze will likely ease as more silver becomes available in London, whether through ETF investors selling or traders transporting bars from elsewhere to alleviate the strain.

There are early signs this is starting to occur.

One logistics executive shared that he’s been getting urgent requests from clients wanting to transfer silver from Comex-associated vaults in New York to London. He estimates traders aim to move roughly 15 to 30 million ounces from New York to London. On Friday, Comex recorded its largest single-day silver withdrawal in over four years.

In recent days, silver prices have also traded at a discount to London, prompting speculation that silver might begin flowing out of China, although domestic conditions may limit quantities.

Joseph Stephens, head of trading at MKS Pump SA, one of the largest precious metals refiners, mentioned, “There’s a natural momentum for material to return to London, and we hope to see normalization.” However, he added, “The challenge is mobilizing balances currently held elsewhere in the world and bringing them back to London.”

Despite this, some traders remain hesitant to export silver from New York due to complex logistics, where even a single day’s delay could be costly given London’s traffic, particularly if a government shutdown hampers customs processing. There are ongoing concerns that President Trump could impose import duties on silver stemming from investigations into critical minerals, including silver.

“If there are no tariffs on silver, it could alleviate some bidding pressure in the U.S. and help ease the tightness in London,” noted Morgan Stanley strategist Amy Gower. “Sometimes higher prices can provide short-term solutions to these issues.”