Silver price falls in frenetic trading as short squeeze starts to ease

Spot silver prices fell from an all-time high in another day of frenetic trading in the London silver market, with tentative signs emerging that a historic squeeze is starting to ease.

Spot prices for silver fell as much as 3.6% before rebounding partially, moving back towards an all-time $53.55 an ounce struck early in Tuesday’s trading session.

A lack of liquidity in London has sparked a worldwide hunt for silver, with benchmark prices soaring to near-unprecedented levels over New York. That’s prompting some traders to book cargo slots on transatlantic flights for silver bars — an expensive mode of transport typically reserved for gold — to profit off higher prices in London.

Those silver bars will start arriving in the coming days and weeks, multiple traders said, and the arbitrage trading has already substantially eroded the premium. The price gap between the two markets narrowed, and the cost of borrowing silver in London also started to fall, although both remained at extreme levels.

On Tuesday, silver touched levels about $1 higher than a peak set in January 1980 on a now-defunct contract overseen by the Chicago Board of Trade, when the billionaire Hunt brothers attempted to corner the market.

Last week, silver lease rates — which represent the annualized cost of borrowing metal in the London market — surged to more than 30% on a one-month basis on Friday. One month borrowing costs were still at eye-watering highs on Tuesday, at about 14%.

Speaking privately, one senior trader said overnight lease rates, which had spiked over 100% late last week, were hovering around 30% on Tuesday.

“What we are seeing in something like silver is just a mismatch maybe with some of the paper contracts relative to the physical positioning,” Evy Hambro, BlackRock Thematic and Sector Investing Global Head, told Bloomberg TV on Tuesday.

A jump in demand from India in recent weeks has drawn down the supply of available bars to trade in London, as had inflows into silver-backed exchange traded funds. That followed a rush to ship silver to New York earlier this year as concern that the metal could be hit with US tariffs sparked large dislocations between the two trading hubs.

While precious metals were officially exempt from levies in April, traders remain on edge ahead of the conclusion of the US administration’s so-called Section 232 probe into critical minerals — which includes silver, as well as platinum and palladium. The investigation has revived fears the metals could be swept up in new tariffs, exacerbating market tightness.

At the same time, Goldman Sachs Group Inc. analysts warned of the potential for a price correction in the relatively illiquid silver market that’s nine times smaller than gold’s.

“Without a central bank bid to anchor silver prices, even a temporary pullback in investment flows could trigger a disproportionate correction, as it would also unwind the London tightness that drove much of the recent rally,” the Goldman analysts wrote in a note.

The four main precious metals have surged between 58% and 82% this year, in a rally that’s dominated commodity markets. Gold’s advance has been underpinned by central-bank buying, rising holdings in exchange-traded funds, and rate cuts by the US Federal Reserve.

Demand for havens has also been aided by recurrent US-China trade tensions, threats to the Fed’s independence, and a US government shutdown.

Spot silver was trading down 0.9% at $51.89 an ounce as of 7:04 p.m. in London. Gold rose 1% to $4,151.60 an ounce, after touching an all time high at $4,179.70 earlier in the session.

The Bloomberg Dollar Spot Index fell 0.1%. Platinum and palladium both rose.

(By Sybilla Gross, Mark Burton and Jack Ryan)