On The Silver Mountain blog, we share information about the current economic situation, gold and silver prices, and other relevant details related to precious metals. This article focuses on the plummeting silver reserves in London as its central topic.
 

The Situation

Over the past nine months, the silver reserves stored in the LBMA vaults in London have consistently decreased every month, reaching a historic low. These vaults include precious metal storage facilities in and around London, managed by banks such as JP Morgan, HSBC, and ICBC Standard Bank. Additionally, the vaults house precious metals from security firms like Brinks, Malca-Amit, and Loomis.
 
As the system of vaults is managed and coordinated by the London Bullion Market Association (LBMA), these vaults are also referred to as the "LBMA vaults."
 
In July of this year, BullionStar highlighted that a negative trend was developing. By the end of June 2022, silver reserves in the LBMA vaults had fallen to 997.4 million troy ounces (31,023 tons). To provide context, at the end of June 2021, the silver reserves in these vaults were 1.18 billion troy ounces (36,706 tons), reflecting a decline of 15.48% in just one year.
 
The LBMA website states that the reserves in the London LBMA vaults "provide important insight into London’s ability to support the physical OTC market."
 
However, what the LBMA does not mention is that of the 31,023 tons of silver stored in the London LBMA vaults as of the end of June 2022, 19,422 tons (62.6%) were owned by ETFs such as the iShares Silver Trust, the WisdomTree Physical Silver ETC, and the Aberdeen Physical Silver Shares ETF.
 

#SilverSqueeze

Systemic banks hold substantial short positions in silver. The silver market is among the most manipulated markets in the world. These banks “manage” (manipulate) the silver price, partly to suppress the real inflation rate. For every ounce of silver, there are approximately 200 contracts in circulation. Silver has both monetary and industrial value, making it a viable asset for hedging against inflation risks. The paper silver market is 200 to 250 times larger and entirely controlled by Wall Street short sellers. Only the purchase of physical silver can genuinely undermine these short positions in the long term and push silver prices higher.
 
Gold banks' paper traders are continually motivated to suppress the paper silver price to prevent it from breaking out above $30 per troy ounce. Since mid-April, there has been a visible decline in the silver price, correlating with a sharp reduction in the silver holdings of silver-backed ETFs. This appears to be a deliberate strategy to drive ETFs to sell silver by creating a lower price, effectively “washing” silver out of the ETFs.
 
This “washing” serves two purposes: to create negative market sentiment and prevent buying pressure from building up and to redirect existing silver to meet global physical silver demand.
 
In February 2021, during the early weeks of the #SilverSqueeze movement, 85% of all silver in the LBMA London vaults belonged to ETFs. This left only 15% (less than 5,000 tons of physical silver) to meet all physical silver demand. The iShares Silver Trust (SLV) warned that “Demand for silver may temporarily exceed available supply.”
 
LBMA silver vault reserves are now at a five-and-a-half-year low, with total reserves falling below 1 billion ounces. The downward trend has persisted every month since November last year. According to a 2022 study by The Silver Institute, the first shortage of physical silver occurred in 2021, and this trend has continued into 2022. Looking at The Silver Institute’s supply-and-demand data, physical silver supply is growing slowly and is expected to reach approximately 32,000 tons for 2022. On the demand side, silver demand is rising across all sectors, from industrial and photovoltaic uses to jewelry and silverware. Additionally, demand for physical silver by investors (coins and bars) in 2022 remains as strong as in 2021.
 
The LBMA website updates its vault data on the fifth business day of every month. It shows that the 997.4 million troy ounces of silver as of the end of June 2022 have already dropped to 916.497 million troy ounces. The pressing question is whether future physical silver demand can be met if this declining trend continues.
 

 
Disclaimer: The Silver Mountain does not provide investment advice, and this article should not be considered as such. Past performance is no guarantee of future results.