Indications That The London Vault Silver Red Line Is Very Close

“What we call chaos is just patterns we haven’t recognized. What we call random is just patterns we can’t decipher.”

Chuck Palahniuk

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Trying to decipher the opaque London gold and silver cash markets presents a formidable challenge - especially since understanding this market, as the world’s largest physical gold and silver market, is terminal to the deception that it uses to fix the global prices of gold and silver.

Multiples of the annual global mine production of both of these monetary metals are traded in the London immediate ownership cash market, each day.

Utilizing leverage to fix prices (up or down) never ends well and thoughts of markets such as the Kuwait Souk Al-Manakh ‘Camel Market’ stock fraud come to mind.

At its peak in 1981 this Kuwaiti stock market, run out of a former parking garage, became the 3rd largest stock market by capitalization in the world.

The Kuwait Camel Market used a system of check kiting to drive Middle Eastern company stocks to the moon.

Then one day, an individual tried to cash one of the kited checks and discovered that there were no funds available. This led to further interesting discussions among other Camel Market investors, who also tried to cash their checks, with the same result.

Camel Market stocks then came back from the moon and, in a few days, suddenly nobody showed up for the Camel Market opening bell. That was it.

What the Kuwait Camel Market and the London gold and silver market share is non-existent assets (cash in the former, phantom gold and silver bars in the latter) to set market prices.

Nose Under The Tent Of The London Silver Vaults

The most most levered between the gold and silver markets in London is the silver market.

And the silver market has seen 6 years of global supply deficits of silver bars and the 2024 global silver market deficit is projected at 265 million (M) oz.

One would expect that with this level of silver to come out of vaults this year to meet global demand that the vaults in London would be drawn-down.

But what we see when we look at London silver vault stocks is that London vault holdings have, counter-intuitively, flat-lined since 2022 (see Figure 1 below).

The signal is that of the London silver ‘Float’ that is not claimed by ETFs, not all is available to market.

The London silver total Float in August 2024 was 9,599 tonnes.

This next raises the question of how big is the NET vault silver Float in London that is available to market?

The London Bullion Market Association (LBMA) does not disclose this information however let’s try to estimate the figure.

Figure 1 - London Silver Vault Holdings [tonnes]; source: LBMA and goldchartsRus.com

We can see in Figure 1 above that in January 2024 London vault holdings dropped to approximately 25,500 tonnes of silver - see the vertical red arrow.

At the same time, in January 2024, the 2 months implied lease rate for silver surged to 3%, as shown by the red arrow in Figure 2 below, signaling market shortage of the metal (note also that Implied Silver Lease Rates have been elevated signaling physical market supply stress since 2022).

The implication is that the red line (the dotted red line in this case) for available London silver holdings is not far below 25,500 tonnes.

The NET London vault Float may be as little as 1,000 tonnes (32M oz.) of silver as shown by the dotted red line in Figure 1 above - or less - in a 1.3B oz. annual global silver market and with standing cash market claims in London estimated at 5B oz.

The remainder of the London vault silver Float (i.e. other than the Net Float) is assumed to be privately held and not available to market at current prices.

While there are other vault stocks of silver globally, the inability of silver vault holdings to drop materially below current levels is of interest.

Figure 2 - Implied Silver Lease Rates; source: goldchartsRus.com

While, by design, we cannot know the Net Float of London vault silver, the signals from the vault stock and implied silver lease rates bear close scrutiny as we go forward.

I will leave you with a clip from the film Lawrence of Arabia where Auda Abu Tayi (played by Anthony Quinn) discovers there is no gold in Aqaba that he had been promised by Lawrence (Peter O’Toole) - only paper.

There may be very little actual silver, but infinite paper silver, available in London.

Best regards,

David Jensen