Silver: London Calling
Douglas French

Financial news is a constant drumbeat of AI this and AI that. But, during the week of October 10, the price of gold  grabbed headlines pushing above $4,000 and silver’s week was eventful as well. “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,” reported Bloomberg.

The white metal’s price chaos of the last week has many similarities with the 1980 Hunt Brothers’ squeeze, and in some ways is even more extreme.

Bloomberg reported,

The silver auction in London – a daily price-setting event held since 1897 – on Friday traded above $50 for the first time ever. Spot prices in London shot to a premium as high as $3 over futures in New York, a level previously only seen in the midst of the Hunt brothers squeeze. The cost to borrow London silver overnight rose well over 100% on an annualized basis, which at least one market veteran said he believed was higher than anything seen during the 1980 squeeze.

Premiums on London silver were high enough for traders to book cargo holds, usually only used for high valued gold, on transatlantic flights to bring the metal back to London. “I have seen nothing like it ever. What we are seeing in silver is entirely unprecedented,” said Anant Jatia, chief investment officer at Greenland Investment Management, a commodities hedge fund. “There is no liquidity available currently.”

London is the heart of precious metals trading with a handful of vaults located around the city. At day’s end positions are squared and “secure trucks  shuttle between the vaults to deliver bullion to settle the trades.” London’s silver stock has fallen by a third since 2021 with silver miners unable to keep up with demand.  Recent buying from India, which formerly sourced its metal from Hong Kong, plus the potential for President Trump to institute tariffs on the white metal has put increasing pressure on the silver’s short-term liquidity in the city.

On this side of the pond, the Wall Street Journal reported that buyers are flocking into the Manhattan’s Diamond District. Some 2,600 jewelry stores pack the midtown block. Joseph Pasini wrote, “At Diamond District Gold Buyers, owner Sandro Ragovski said he has had trouble keeping enough cash in the store to pay out people unloading their gold. He sometimes pays them partly by check. Recently, he had to walk to the bank with a seller who wanted a certified one.” 

While many are selling family heirlooms, wealthier folks are buying. “There’s a wealthier clientele that is actually buying up a lot of gold because they see it as investment, and they already have that cash liquid,”  Jacqueline Mirón of  JGemJewels told the WSJ. “They’re like, yeah, I want that $10,000 gold chain because I know that chain is going to be worth more, maybe even by the end of the year.” 

My old friend Burt Blumert of Camino Coins used to say, “treasures change hands when times are tough.”

 

 

 

 

Douglas French is President Emeritus of the Mises Institute, author of Early Speculative Bubbles & Increases in the Money Supply, and author of Walk Away: The Rise and Fall of the Home-Ownership Myth. He received his master's degree in economics from UNLV, studying under both Professor Murray Rothbard and Professor Hans-Hermann Hoppe.

 

 

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