Western PM exchanges running on fumes
LBMA empty, COMEX coming next
A very short update today as it’s Christmas Eve for most of us, and instead of reading my ramblings on silver, you should be spending time with your family or friends. Not with stacks of silver 😉. However. Given the extraordinary - I would say parabolic - moves in silver lately, I thought to give a short update.
I haven’t been writing much about silver lately, because my thesis is working out just as I envisioned it. I confess, it arrived a few months late, and will probably still be a few months before we get where I thought we’d be by now. But I’ll take the victory lap thank you very much.
12,688 silver contracts demanded physical delivery on the COMEX for December settlement. That’s 63.44 million ounces against 127 million ounces of registered inventory.
Half of available silver claimed in one contract month!
What happens when this becomes the new normal?
Via David Jensen’s blog I saw a very good proxy for the implied silver lease rate: you calculate it by taking the silver swap rate (what you pay to exchange silver for dollars and back) and subtracting the risk-free interest rate (US Treasuries). The result should be positive - reflecting the cost of storing, insuring, and financing physical silver.
When it goes negative, you’re looking at a market where silver today costs more than silver a year from now. Not by a little. By 7.18%.
That’s not supposed to happen. Storage costs money. Insurance costs money. Financing costs money. The swap rate exists because banks, producers, and industrial users constantly exchange silver for dollars without physically moving metal vault to vault. It keeps London’s physical market connected to New York’s financial market.
Except now the system is inverted. Mercx’s chart shows the distortion is growing, not shrinking.
This is what a run on London looks like. David Jensen’s been documenting it on his Substack since forever. TL;DR: Holders of unallocated promissory notes demanding actual metal. London trades up to 700 million ounces daily according to the LBMA. Billions of ounces in standing ownership claims.
The gold/silver ratio went through 65 like butter through a hot knife as the saying goes. Next resistance? 63. That’s where we are now at. I do expect a slight bounce here to like 70 or so before the next leg down.
For context, this ratio spent most of 2025 above 80. Earlier in the year it touched 100. The 50-year average sits around 60-70. But the ratio’s been as low as 47 in recent history. In 1980, it hit 30.
Silver’s up 138% this year. Gold’s up 71%. Impressive, both of them. But the ratio tells you silver’s still got room to run.
At current gold prices around $4,400, a move to the 47 level puts silver at $93. The 30 level? $146.
Those levels aren’t fantasy. They’re historical. The ratio’s hit them before when physical markets tightened and paper markets broke.
The COMEX delivery squeeze and London’s inverted lease rates aren't isolated incidents. They’re confirmation that physical tightness has moved from theoretical to unavoidable. The paper markets are running on fumes while physical demand accelerates.
As I detailed in “The dog ate my silver”, the market shifted toward a crisis point between January and March.
Asia keeps buying. Premiums in Shanghai consistently exceed COMEX/LBMA. Physical metal is being pulled from Western exchanges due to the arbitrage. The dominant factor isn’t paper anymore - it’s who actually has the metal.
My thesis in short:
Industrial users can’t delay production. These buyers are price-insensitive. They need metal or their factories stop.
Silver ETFs absorbed 95 million ounces in the first half of 2025 alone. That’s metal locked away. Not available for delivery.
Mine production is inelastic - 70-80% of silver comes as a byproduct of other metal mining. New mines take a decade to bring online.
Which points to the inescapable fact: Nobody trusts paper silver contracts anymore.
The market is repricing. Not gradually. Fast.
Because that’s what happens when decades of price suppression meet actual physical shortage.
These repricings aren’t gentle.
They’re violent.
Now what could derail these events? As it’s always good to stand still and think of the bear case too to see if we’re not too much skewed to the bull side:
Three scenarios I can think of:
exchanges protect themselves. COMEX and LBMA wake up one Monday morning and announce 100% margin requirements. No more leverage. Want to hold a futures contract? Post the full value upfront. Overnight, speculative demand disappears and the squeeze releases pressure. They’ve got the rulebook and they’ll rewrite it if cornered.
ETF redemption gates slam shut. SLV and others invoke their “extraordinary circumstances” clauses and suspend physical redemptions. The fine print already allows it. Suddenly those 1+ billion ounces in ETF holdings aren’t available to anyone. Paper promises stay paper.
something bigger breaks. Major financial crisis - credit event, sovereign debt implosion, systemic bank failure - forces mass liquidation of everything. Including silver. Industrial demand collapses as factories shutter. Investment demand evaporates as everyone scrambles for dollars. The exchanges get saved not by intervention, but by economic catastrophe doing their job for them.
Merry Christmas everyone!
Thank you for balanced view, especially showing bear case. Little tired of ‚silver to the moon’. Copper and oil prices indicate economic slowdown. One element is if we remember that silver has a monetary quality. India and Russia May think so. Here in the West, less so. Another factor behind rising silver price May be China‘s coming export controls. Will major producers Peru, Mexico and Russia also limit exports beginning 2026?
Wishing you a merry Christmas and quiet holidays. Best,
Exciting times in precious metals! Silver obviously. Gold is up 4% on the week and 10% on the month. Quiet ol' platinum is up 150% on the year!
Back to silver fundamentals:
1. The biggest silver markets in the world, the LBMA and COMEX, are now illiquid for silver. Their vaults, once awash in physical silver, have been reduced to fumes.
2. Demand for physical silver (industrial and retail) far outstrips the world's production, and has done so for at least five years straight.
3. The big gaping maw that swallows most silver - China - is offering a big premium for physical silver over the COMEX spot price.
4. Industrial need for silver has exploded, largely due to it's use in solar/electronics, for which silver is the very best conductor in existence of heat and electricity.
5. China, the world's largest producer of silver, has just prohibited its export starting January 1, 2026. This isn't just for bars of refined silver. They've also prohibited export of silver slag, the stuff that would get sent out for refining elsewhere.
6. The biggest individual holder of physical silver at 750 million ounces, J. P. Morgan-Chase, has quietly switched from being net short to net long.
7. Rumors (I stress rumors) are that some silver mines that have delivery contracts with the COMEX have declared force majeure, and will no longer send the silver to them. This is because they can make more selling to China. (see above)
8. The long-running (40 year) short squeeze that the banks have worked over the price of silver has broken down. The price of silver has risen sharply, which puts the short sellers in a loss position. They have to buy silver to stop those losses, further increasing silver's price.
9. Silver is largely a byproduct of copper, zinc and lead refining. That's where the large majority of the supply comes from. That puts inertia in the silver supply chain: you can't just snap your fingers and build a copper mine.
10. World-wide retail interest in silver - as a hedge against currency debasement, jewelry and coinage - has risen.
11. Inflation is back, and looks to be staying.
The above are why "it's different this time," compared to previous spikes in the silver price. It's not a couple of big players trying to corner the market or a temporary disruption in supply. The current reasons for silver's rise are structural and persistent.
That said, I make no predictions about what it will do from here. I got into precious metals not as an investment, but as a hedge against inflation and currency debasement, which are structurally unavoidable and increasing.
Remember: the intrinsic value of precious metals doesn't change. (Silver's a bit different as industrial uses have grown sharply.) What changes is how many dollars you have to pay to get the PM. In other words, it's the value of your dollars that diminishes over time, while the value of the PM stays relatively constant. As your dollar becomes worth less, the price of the metal rises relative to your dollar.
Best of luck to everyone, Merry Christmas and happy holidays to all, and many thanks to No.1 for gracing us with his blog!