London's silver market erupted this week after an extraordinary short squeeze sent prices above $50 an ounce for the second time in history, reviving comparisons to the historic Hunt Brothers debacle of 1980 that rocked global commodity prices.
The rise pushed London's benchmark prices to levels not seen in decades, overtaking New York prices and throwing the entire market into turmoil.
With liquidity all but gone, those short on silver are scrambling to find the metal and paying exorbitant borrowing costs to advance their positions, traders said.
The panic became so bad that some traders began reserving space on transatlantic cargo planes to physically transport silver bars from New York to London. This is usually the way it is done with gold. They are simply doing this to cash in on the record premiums currently being offered in London.
Analysts stress that no hunter is trying to corner the market this time around, instead pointing to a perfect combination of factors — surging investor demand, shrinking inventories and growing concerns about U.S. tariffs — pushing prices into overdrive.
Traders rush for insurance as liquidity erodes
“This is completely unprecedented,” said Anant Jatia, chief investment officer at Greenland Investment Management. “There is no liquidity currently available.”
London has served as the command center for global precious metals trading for more than a century, with a handful of banks setting the daily benchmark prices for both gold and silver. Each night, after trading, trucks move the bullion between heavily guarded vaults around the city. That system is currently under severe strain.
The soaring silver price was driven in part by a flood of money into gold and silver as investors hedged against ballooning Western debt and currency devaluations, exacerbated by the U.S. government shutdown and budget impasse.
But traders say the real crisis stems from a dramatic increase in demand from India in recent weeks, as well as tight supplies of tradable bullion and fears that President Donald Trump's administration will impose tariffs on the metal over critical mineral exploration.
Daniel Ghali of TD Securities said Indian buyers who previously sourced silver from Hong Kong moved their orders to London during Golden Week, depleting local inventories. An Indian ETF on Thursday froze inflows of new funds, citing lack of funds in the country.
London's supply problems are becoming even more serious. The storage inventory has continued to decline over the years. Since mid-2021, they have fallen by about a third, leaving only about 200 million ounces freely available, a 75% drop from more than 850 million ounces in 2019, according to data compiled by Bloomberg.
Most of what's left is locked away in exchange-traded funds, out of the reach of physical traders. The London Bullion Market Association (LBMA) confirmed it was “aware of the tightness in the silver market and is actively monitoring the situation.”
Silver flies across the ocean, prices break records
The London silver auction, which has been going on since 1897, exceeded $50 on Friday for the first time in history. Spot prices in London soared to a $3/oz premium over New York futures, a spread not seen since the 1980 financial crisis. The cost of borrowing London silver overnight has soared by more than 100% annually, and market veterans say it could even surpass its 1980s peak.
The bid-bid spread widened from the usual 3 cents an ounce to more than 20 cents an ounce, evidence of how thin the trade had become. “Banks don't want to quote each other, so the range of estimates is very wide,” said Robert Gottlieb, a former precious metals trader and managing director at JPMorgan Chase.
Back in 1980, part of the Hunt Brothers folded due to interference from the US exchanges. The Comex and the Chicago Commodity Exchange Commission froze new speculative positions, traders were forced to liquidate, and prices fell from a record $52.50 an ounce on January 21, 1980.
This time, no regulator can pull the same lever. The only solution is for more metal to reach London, either through sales by ETF holders or shipments from overseas.
Early signs indicate that some births are underway, but complications continue. Traders in New York are hesitant to export because any delays could cost them millions of dollars overnight. The U.S. shutdown threatens to delay customs clearance, while even a day's delay can wipe out profits in this tight market.
Adding to the anxiety are concerns that President Trump could soon impose import duties on silver under Section 232, a federal investigation into key minerals. Until these questions are answered, the London market will remain at a standstill.
