Silver squeeze nears end game, says TD analyst

The recent rally in silver prices could soon reach a climax, according to TD Securities, as the bank sees the market nearing an inflection point following depletion of inventory in London.

In a recent note, commodity strategists led by Daniel Ghali said that free-floating stockpiles in London Bullion Market Association (LBMA) vaults have reached a “critically low level”, as seen in the rising lease rates for silver metal, which have entered what he calls “extreme” territory.

This, in turn, led to a squeeze in the silver market, driving prices to levels last seen since 2011.

However, according to Ghali, a “pressure release valve” could soon be on the horizon, with the London market receiving a liquidity boost as early as next week.

Draining inventory

In a phone interview with MINING.COM, Ghali said that London silver inventories were sitting at approximately 135 million oz., about half of the metal’s daily average trading volume.

One catalyst behind the inventory drain, as Ghali wrote in his note, has been strong buying activity in India, one of the largest precious metals markets in the world. Reports imply that imports into the country may have doubled over the course of September from the prior month, though dislocations in London have been acute enough to be self-resolving for the time being.

Another factor is the timing of China’s Golden Week — a seven-day national holiday starting Oct. 1 — which prevents the other big precious metals consumer from backstopping the London silver market. In the coming months, however, Chinese stockpiling is likely to slow, suggesting the window will soon close for prices to remain in the current range, Ghali added.

In addition, fears of US tariffs over the metal’s critical mineral designation also drove arbitrage opportunities in the global silver markets, further exacerbating the silver squeeze, he told MINING.COM.

End game

With a potential easing of these pressures, TD strategist said he believe that this is the “end game” for what they envisioned for silver — what Ghali calls the “#silversqueeze you can buy into” — premised by the draining of the London vaults.

In an earlier interview with Bloomberg, Ghali estimated there are “probably less than four months” remaining until the LBMA’s entire free-floating stockpile is depleted, citing the pace of ETF inflows over past rate-cutting cycles. This would lead to elevated gaps in prices and constrained liquidity, and every drain from current levels should be supportive for silver prices, he says.

“For the first time in 1.5 years since the inception of the ‘#silversqueeze you can buy into’, we see a pressure release valve on the horizon. This is what a thematic climax looks like,” Ghali wrote in his note.

“This saga isn’t necessarily over, but we expect London silver markets to find their first liquidity boost by this time next week — and with prices inching towards nominal ATHs, a drawdown from current levels
concurrently with a boost to liquidity could significantly dent market sentiment,” he added.

This year, silver has risen by more than 60%, benefiting from an increased safe-haven demand amid heightened geopolitical risks and expectations of lower interest rates. After hitting multiple 14-year highs in recent weeks, the metal is now eyeing the $50-an-ounce level for the first time since 2011.

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