The London silver market is in rare disarray. A powerful short squeeze has driven benchmark prices above $50 an ounce, marking only the second time in history the metal has reached that level. For veterans, the surge recalls the infamous Hunt brothers’ attempt to corner silver in 1980.
According to Bloomberg, liquidity in London has nearly vanished. Traders short the physical market are struggling to find metal, paying steep borrowing costs to maintain positions. “There is no liquidity available currently,” said Anant Jatia, Chief Investment Officer at Greenland Investment Management. “What we are seeing in silver is entirely unprecedented.”
“There is no liquidity available currently.”
— Anant Jatia, Greenland Investment Management
London at the Center of the Storm
For more than a century, London has served as the hub of global precious metals trade, where benchmark prices are set and vaulted bars circulate among a tight network of banks. Secure trucks once handled those flows daily. Today, cargo planes are stepping in. Traders are reportedly booking transatlantic freight to move bulky silver bars from New York to London, paying rates typically reserved for gold to capitalize on the premium in the London spot market.
“Some traders have rushed to book slots in the cargo holds of transatlantic flights for bulky silver bars.”
Drivers Behind the Squeeze
The immediate catalyst is a surge in investment demand for gold and silver as Western debt concerns and currency fears intensify. The tension has been amplified by a U.S. budget impasse and fears of devaluation. Yet silver’s shortage is also structural. Indian demand spiked abruptly during Golden Week, coinciding with dwindling inventories in London and concern over potential U.S. tariffs on the metal.
The London vault network once held a vast cushion of liquidity, but those reserves have been eroding. Bloomberg data indicate that London silver inventories have fallen by one-third since mid-2021, with the freely tradable supply now estimated at only 200 million ounces—down from over 850 million ounces in 2019.
“The remaining ‘free float’ of metal… has dropped to just 200 million ounces, down 75% from 2019.”
Indian Surge, Western Tightness
India has emerged as an unexpected force in this episode. Shifting from Hong Kong to London sourcing, Indian buyers have drawn heavily on the already-tight market. TD Securities’ Daniel Ghali noted that even Indian exchange-traded funds have suspended new inflows due to a lack of available metal.
India’s Kotak Mahindra Asset Management Company has temporarily suspended new investments in its Silver ETF Fund of Fund starting October 10, citing a sudden shortage of physical silver in the domestic market and a sharp rise in premiums.
According to Reuters, the company stated that the move was “primarily due to a shortage of physical silver in the domestic market that lifted premiums sharply above benchmark prices.” The statement emphasized that “silver is trading at a premium relative to international prices,” underscoring how physical scarcity has begun to distort local valuations.
The London Bullion Market Association acknowledged “tightness in the silver market” and said it is monitoring conditions closely.
Price Dislocations and Historic Parallels
Prices in London’s daily silver auction have now broken records. Spot premiums have widened to as much as $3 over New York futures, while overnight borrowing costs have climbed beyond 100% annualized—levels possibly exceeding those of 1980. Bid-ask spreads, normally just a few cents, have ballooned past 20 cents an ounce as banks withdraw from quoting each other.
“Banks don’t want to quote each other, so the quotes get extremely wide.”
— Robert Gottlieb, former JPMorgan trader
Searching for Relief
In 1980, regulators quelled the Hunt brothers’ squeeze by restricting new positions on U.S. exchanges. No such mechanism exists today. Relief must come from increased physical supply: either from ETF liquidations or shipments from abroad. Some traders are already moving silver by air, a costly but necessary step to rebalance a market where paper prices have once again collided with the limits of physical reality.
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