The silver rush subsides, London inventories see the largest increase in at least nine years, and spot premiums contract

The silver reserves in the London vaults saw the largest increase in at least nine years in October, easing the previously extreme supply tightness, which had caused London silver prices to be significantly higher than those in Shanghai and New York.

The vaults supporting the London market added nearly 54 million troy ounces of silver in October, equivalent to the weight of over 100 iconic London double-decker buses. This silver was drawn to London due to historic arbitrage opportunities triggered by market tightness, resulting in inventory transfers from warehouses in other regions.

Earlier this year, a large amount of silver flowed from London to New York due to tariff concerns, causing London silver inventories to drop to historic lows. By early October, when demand from India surged, coupled with inflows into silver ETFs, market supply could not meet demand, leading to the highest premium for London spot silver relative to other markets reaching $3 per ounce.

This created an attractive arbitrage opportunity for traders who could quickly withdraw silver from the U.S. and airlift it to London.

Rhona O’Connell, head of market analysis at StoneX Financial Ltd., stated in a report that the significant increase in London vault inventories "undoubtedly indicates that arbitrage has played a role in pulling metal back to London from overseas." Additionally, with the Indian wedding season approaching, which typically drives silver demand, the market may remain tight in the short term.

The latest inflows of silver have alleviated the supply tightness in the London market, with current London spot prices slightly below New York futures prices. During October, approximately 48 million ounces of silver were withdrawn from the New York Commodity Exchange (Comex) vaults.

According to data compiled by Bloomberg, there was a net outflow of about 15 million ounces from silver ETFs in October, most of which store silver in London.

These inflows have restored ample supply to a market that was extremely tight just a month ago.

Daniel Ghali, a commodity strategist at TD Securities, who had warned earlier this year that "demand could exceed supply," now estimates that the amount of silver available for purchase or borrowing in the market is close to 200 million ounces. Ghali noted that the scale of new silver in the London market exceeded the outflows from New York, Shanghai, and ETFs, indicating that some supply may come from private vaults or recycled silver. This marks the end of this round of the "silversqueeze" phase.

However, the cost of borrowing silver in the London market remains high, with a one-month annualized borrowing rate of about 5%, although this is far below the peak crisis level of over 30% in October.

Ruth Crowell, CEO of the London Bullion Market Association (LBMA), stated at a meeting that this round of tightness has accelerated their plans to publish silver inventory data weekly. Currently, silver and gold inventory data in the London market is still published monthly.

It is also important to note that tariff risks have not disappeared. The U.S. has included silver in the Trump administration's Section 232 critical minerals investigation list, which could lead to the imposition of related tariffs and trade restrictions