Intensifying Shortage: This Is What A Run On The London Silver Market Looks Like

Karel Mercx, a Dutch trading expert, analyzes the silver market on Substack, focusing on the silver swap rate. He argues that the difference between the one-year silver swap rate and US interest rates acts as an indicator of physical silver shortage. A negative spread, where the swap rate minus interest rates is significantly negative, suggests a market distortion. This distortion implies that physical silver is more expensive than future delivery, indicating a shortage. Mercx believes this distortion explains the ongoing silver rally due to supply and demand imbalances. Silver swaps are typically used by major players to exchange silver for dollars without physical movement, keeping markets connected. However, this system is strained as buyers now demand physical delivery, driving movement. The increasing distance from the "red line" suggests the London silver market shortage is worsening. The difference between Shanghai and COMEX futures prices further illustrates market pressures. This situation resembles a "run" on the London physical silver market, with holders demanding physical delivery. The leverage of paper claims versus available physical silver increases the potential for market disruption.