I have heard for many years that silver traded on the paper market was massively oversold. Looks like a lot of people are cashing in their paper for physical silver.


https://finance.yahoo.com/news...ondon-104741282.html

The London silver market has been thrown into turmoil by a massive short squeeze, driving prices above $50 an ounce for only the second time in history and stirring memories of the billionaire Hunt brothers’ notorious attempt to corner the market in 1980.

Benchmark prices in London have soared to near-unprecedented levels over New York. 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.

And the squeeze has become so dramatic that some traders have rushed to book slots in the cargo holds of transatlantic flights for bulky silver bars — an expensive mode of transport typically reserved for more valuable gold — to profit off the massive premiums in London.

There’s no modern-day equivalent of the Hunt brothers trying to corner the market today, traders and analysts say, pointing instead to a combination of factors that have sent prices soaring. But the chaos of the past two days bears many similarities with the 1980 squeeze, and in some ways is even more extreme.

“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.”

For more than a century, London has been the heart of the precious metals markets, where global benchmark prices have been set by a small group of banks trading gold and silver bars held in one of a handful of vaults around the city. At the end of each day when positions are squared up, secure trucks shuttle between the vaults to deliver bullion to settle the trades.

The recent price surge has been driven in large part by a wave of investment into both gold and silver, spurred by fears of rising debt levels in the West and devaluation of currencies — a move that has accelerated amid the US government budget standoff and shutdown.

But the squeeze also reflects dynamics specific to silver, with market participants pointing to a sudden jump in demand from India in recent weeks, combined with a dwindling supply of available bars to trade and worries that the metal could be hit with US tariffs.

The silver market relies on the hundreds of millions of ounces of silver held in vaults in London to underpin liquidity. That stockpile has been steadily drained in recent years: first, by persistent deficits as mine production has failed to keep pace with demand from investors and industrial application such as solar panels; then, this year, by a rush to ship metal to the US amid fears of tariffs.

As a result, inventories of silver in London have fallen by a third since mid-2021. However, a large part of that is held by exchange-traded funds. The remaining “free float” of metal available to provide liquidity to the London market — mostly held by big banks — has dropped to just 200 million ounces, down 75% from a high of over 850 million ounces in mid-2019, according to Bloomberg calculations.

The surge in investor buying coincided this month with a sudden increase in demand from India. Indian buyers had been sourcing silver from Hong Kong, but shifted purchases during the Golden Week holiday, said Daniel Ghali of TD Securities. One Indian ETF even halted new investments on Thursday, citing a domestic shortage of metal.

The London Bullion Market Association, a group representing the banks, refiners and logistics companies whose activity makes up the London market, said in a statement that it was “aware of tightness in the silver market and is actively monitoring the situation.”

Smashed Records

Prices have smashed through multiple records in the past two days.

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.

In another sign of the stress in the market, bid-ask spreads for London silver blew out from their typical levels of around 3 cents an ounce to well over 20 cents an ounce.

“Banks don’t want to quote each other, so the quotes get extremely wide,” said Robert Gottlieb, a former precious metals trader and managing director at JPMorgan Chase & Co. “That’s creating this tremendous illiquidity.”

Bars on Planes

In 1980, the market corner was broken by intervention from the exchanges. First Comex, then the Chicago Board of Trade — where the highest-ever recorded silver price of $52.50 an ounce was printed on Jan. 21, 1980 — imposed rules preventing traders from taking new positions and only allowing them to liquidate.

In today’s silver market, there is no such easy fix. Instead, the squeeze is likely to be resolved by more silver becoming available in the London market — either because ETF investors or other holders sell, or because traders are able to fly bars from other parts of the world to London in sufficient quantities to ease the tightness.

There are signs that is beginning to happen.

One executive at a logistics company said he had been receiving calls with growing urgency for the past week from customers seeking to take silver out of vaults linked to New York’s Comex and fly it to London. He estimated that traders were currently seeking to move some 15 million to 30 million ounces of silver from New York to London. On Friday, Comex saw its largest one-day withdrawal of silver in more than four years.

Others reckon that silver will start to flow out of China, where prices have also been trading at a discount to London in recent days, although volumes might be limited due to tightness in China itself.

“There’ll be a natural momentum for material to move back into London and hopefully things will normalize,” said Joseph Stefans, head of trading at MKS Pamp SA, one of the world’s biggest precious-metals refiners. “It’s just a question of mobilizing those balances that are sitting elsewhere in the world and moving them back to London.”

Still, some traders are reluctant to export silver from New York. The logistics are complicated, particularly amid fears the government shutdown may slow down customs processes, and the London squeeze means that even one day’s delay could be punishingly expensive. And there are still concerns that Trump could impose import tariffs on silver at the conclusion of a so-called Section 232 investigation into critical minerals, which includes silver.

“If there are no tariffs on silver that could ease that bid on metal in the US, and relieve some of the tightness in London,” said Amy Gower, a strategist at Morgan Stanley. “High prices can often solve these things in the short term.”

I'm glad I did my precious metals buying back in the 2000s and 2010s. Prices and premiums were reasonable.

By 2022, the jump in premiums had already dissuaded me from buying any more.

And now with spot prices for both gold and silver doubling over the past 18 months, and premiums still high, I'm definitely not buying.

Even with them more than doubling in value since I stopped buying, gold and silver have dropped from being ~10% of my (non-real-estate) investments to ~6.5%.

Dealers have enjoyed their exit plan when buying from the public by selling to the refineries at a better rate than wholesalers, who probably burned as well. Now Dealers won't be buying from the public if they can't unload it immediately. They did it to themselves. Ironic that the backlogged refineries have stopped the melt (for now). Mints have decreased retail silver to satisfy industrial demand and premiums are increasing on what is available. It's going to be an interesting week.

Might be a good time to sell my Roosevelt Dimes I bought in 2010. I haven't sold any since 2011 when silver came close to $50.

Who is reputable these days? I used Gainesville Coin back in 2011.

How would you sell 10 ounce bars and 1 ounce coins at the moment?

This may be the worst time to unload Constitutional silver as many dealers. for the moment, do not have an outlet for their acquisitions and limited retail interest. This too shall pass. I've also read of a shortage of nitric acid used in refining out the copper. 10 and 1 oz bars might be more liquid but dealers have also been sneaky by buying based on the futures paper price and selling on the comex (kitco) price. It's a good time to sit back and chill until the London LBMA "squeeze" has been worked out. Pull backs are normal but not guaranteed. To a large extent, this time is different.

Interesting take on the current situation.

quote:

Originally posted by tatortodd:
Who is reputable these days? I used Gainesville Coin back in 2011.

I’d look up Gainesville coins online. It seems they may be having problems.

quote:

Originally posted by trapper189:

quote:

Originally posted by tatortodd:
Who is reputable these days? I used Gainesville Coin back in 2011.

I’d look up Gainesville coins online. It seems they may be having problems.

Thx. Just checked BBB and they're 2-star. Although to be fair, not many would go to BBB's site to report good experiences.

Silver is $53.11 as I write this. Silver is also going on the strategic metals list so that should increase it even more. More rate cuts and devaluation of the dollar coming too, I am planning on holding what I have.

I am tempted to either take all my profits or to take out my original investment. We're up well over 100% in both silver and gold. Being retired, capital preservation is more important than outsized risk chasing outsized returns.

The unknown for silver is what happens in 2 scenarios. 1) Tariffs don't become an actual problem. Some of the demand and speculation is being driven by the possible increased future cost of importing into the US. 2) The severe shortage of deliverable physical silver is resolved.

My prediction is high volatility until those resolve one way or another, but generally rising price for at least several months. $100/oz will be a major psychological resistance level.

The manipulators and those holding piles of paper derivatives may be in for stunning losses.

Markets are bonkers right now. Gold +60.11% YTD; Silver +82.49%. Think I'll just grab some popcorn and watch for a while.

quote:

Originally posted by Fly-Sig:
...or to take out my original investment..

I've considered this as well. Time to just play with the house's money. The question I have, is how does one avoid capital gains? At 28%, it'd have to get a whole lot higher to make it worthwhile.

Just barter with a neighbor

quote:

Originally posted by Gustofer:
The question I have, is how does one avoid capital gains? At 28%, it'd have to get a whole lot higher to make it worthwhile.

All of my metals are held in an IRA. We are aggressively working to keep our federal taxes at zero, though up to 12% doesn't cause me too much pain.

Inherit it, get the step up in basis, sell immediately, no tax.

^^^^ So there is a problem with selling junk silver?

From what I am gathering it is related to the cost and material availability to refine it?

If so that would mean less value for this product or would it make it unsellable?
I would assume there is a price for everything at some point.

^ yes, I would presume materials such as nitric acid are limited for processing anything other than .999 that only needs to be assayed and melted. Mostly, I assume, it's allocation of time. Think a shortage of 22lr because it's all hands on deck for 9mm Nato demands. In this case the demand is for good delivery 1000 oz bars for LBMA and/or foreign markets.

Local dealers may only offer 50 percent back of spot since they currently don't have an outlet for what they buy and still need to turn a profit. We can only hope this business model ceases after the dust settles and prefer to sell to retail instead of burning history a la the 1980 Big Melt. They may have to wait until retail demand increases or sell to larger dealers that will in turn sell to the public. Recent spot deals are likely to diminish as premiums are gradually increasing.

If you have to sell, it might be better to find a peer-to-peer option and cut out the middle man.

Stop the Melt



LBMA situation

This message has been edited. Last edited by: SigSentry,

^^Yep right now is the time to pickup Constitutional Silver coins, Dealers are lowballing because of backlog at refiners. I just check pawnshops and individuals and even if you split the difference between spot and what dealers are offering you will still make a profit long term.