Historic short squeeze in London silver, market liquidity nearly completely dried up!

The London silver market is experiencing rare turbulence in decades. An unprecedented "squeeze" is sweeping through this century-old precious metal trading center, driving the silver price to over $50 per ounce - the second time in history it has reached this level, reminiscent of the 1980 attempt by the Hunt brothers to manipulate the silver market. The latest data shows that the London spot silver price has seen an unprecedented premium level compared to New York futures, with market liquidity almost drying up. Traders holding short positions are struggling to find deliverable metal, being forced to pay high costs to delay settlement. Some institutions have even chartered cargo flights across the Atlantic, airlifting bulky silver ingots - a costly operation usually only used for gold bar transportation - to take advantage of the premium in the London market. Anant Jatia, Chief Investment Officer of Greenland Investment Management, exclaimed, "I have never seen anything like this before. What we are seeing in the silver market is completely unprecedented, with hardly any liquidity in the market." As a global precious metal pricing center with a hundred-year history, London's market operation depends on a few banks and a limited number of gold vaults in the city. At the close of trading each day, armored vehicles shuttle metal around to complete deliveries. But now, this mechanism has been completely disrupted. From hedge funds to Indian demand, multiple factors are exacerbating the liquidity crisis in the London market. Analysts point out that this run on the market is not a "modern-day Hunt brothers' conspiracy," but the result of multiple forces coming together. Firstly, global investors have flooded into gold and silver recently to hedge against the rapid rise in U.S. debt, fiscal deadlock, and currency devaluation risks. At the same time, the unique supply and demand tension in the silver market has intensified market volatility. Secondly, the surge in investor buying coincides with a sudden increase in Indian demand this month. According to TD Securities' Daniel Ghali, Indian buyers were previously purchasing silver from Hong Kong, but shifted their purchasing channels during the "Golden Week" holiday. One Indian ETF even suspended new investments on Thursday, citing domestic shortages. Additionally, traders are concerned that the U.S. may impose import tariffs on silver, sparking a trend of metal being shipped out of the U.S. market ahead of time, further driving up the London spot premium. The London Bullion Market Association stated in its latest announcement that they are "aware of the tension in the silver market and are actively monitoring the situation." The association represents banks, refiners, and logistics companies, whose activities constitute the London market. Inventory depletion: London's silver "free float" reduced by 70% The liquidity in the London silver market relies on hundreds of millions of ounces of metal stored in local vaults. However, these inventories have been continuously depleted in recent years: Insufficient mineral supply to meet investment and industrial demands (especially in the CECEP Solar Energy industry), ETF holdings continue to rise, locking up physical silver in the market, Increased exports to the U.S. have exacerbated the strain on available silver stocks in London. London's silver inventory has fallen by a third since mid-2021, with a significant portion held by exchange-traded fund holdings. Meanwhile, according to Bloomberg data, the freely available silver stocks in the London market have plummeted from 850 million ounces in mid-2019 to only about 200 million ounces, a drop of up to 75%. Squeeze escalation: Borrowing costs spike, premium hits record high As the squeeze intensifies, the silver price has broken multiple records in the past two days. The London silver price auction - a daily pricing activity held since 1897 - traded above $50 for the first time on Friday. The premium of the London spot price over New York futures reached $3, a level only seen during the Hunt brothers' squeeze period. The overnight lending cost for silver in London has exceeded 100% annualized, with at least one market veteran believing this is higher than any level during the 1980 squeeze. Former precious metals trader and managing director at JPMorgan, Robert Gottlieb, stated, "Banks are reluctant to quote each other, so the bid-ask spread has become extremely wide. This has led to a tremendous shortage of liquidity." Airlifting silver ingots, cross-ocean arbitrage In the 1980 "Hunt brothers event," the market manipulation was ultimately ended by restricting new positions and forcing liquidation. But now, there is no mechanism for a "one-button reset." The current easing path is to bring more physical silver back to London: either through ETF investors or holders selling off, or through the transfer of physical silver from overseas. An executive at a logistics company stated that over the past week, he has received increasingly urgent calls from clients seeking to withdraw silver from New York Comex-related vaults and airlift it to London. He estimates that traders are currently seeking to transfer around 15 to 30 million ounces of silver from New York to London. On Friday, Comex saw the largest single-day silver withdrawals in over four years. Joseph Stefans, Trading Manager at MKS Pamp SA, one of the world's largest precious metal refiners, said, "Silver will naturally flow back into London, hoping the situation will normalize. The challenge is how to mobilize existing stocks from around the world and bring them back to London." Amy Gower, a strategist at Morgan Stanley, pointed out, "If there are no tariffs on silver, it may ease the demand for metal in the U.S. and alleviate some of the tension in London. High prices often solve these problems in the short term." This article is reprinted from Wall Street View. Editor: Chen Wenfang.