(Bloomberg) — Silver jumped to its highest level since 2011, as US premiums rise and the spot London market shows signs of tightness.
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Spot silver rose as much as 4% to $38.47 an ounce, the most since September 2011. US silver futures climbed even higher, with September contracts hitting $39.12 an ounce. Such a wide price gap is unusual, as it is typically eliminated quickly through arbitrage.
The precious metal last experienced a price dislocation between its two major markets at the beginning of the year, when the prospect of US tariffs on silver imports drove US futures prices higher. The arbitrage opportunity also pushed leases up, as traders looked to secure metal for shipment to Comex-linked warehouses in New York. The rush to move silver ended abruptly once the White House confirmed that bullion would not be exempt from the levies.
The implied annualized one-month borrowing costs for silver in London jumped to approximately 4.5% on Friday, well above the typical near-zero rate. Higher lease rates indicate a tightening market.
Most of the silver in London is held by exchange-traded funds, meaning it is not available to lend or buy. The white metal has recently been bolstered by solid inflows into silver-backed exchange-traded funds, with holdings up by 1.1 million ounces on Thursday, according to data compiled by Bloomberg.
Daniel Ghali of TD Securities has argued that the outflow of silver caused by the tariff arbitrage opportunity has left inventories of freely available silver in the market critically low.
“Our estimates of LBMA silver’s free-float now stands at its lowest levels in recorded history,” Ghali wrote in a note Thursday. “Silver’s illusion of liquidity tells us that silver markets will only rebalance through some form of a squeeze on physical.”
The white metal has risen 33% this year, with gains recently outpacing gold. Silver has a dual character, valued both for its uses as a financial asset and an industrial input, including for clean-energy technologies. The metal is a key ingredient in solar panels, an increasingly important source of demand. Against that backdrop, the market is headed for a fifth year in deficit, according to industry group the Silver Institute.
Spot silver was 3.9% higher at $38.46 an ounce as of 2:21 p.m. in New York. Spot gold rose 1% to $3,357.79 an ounce. The Bloomberg Dollar Spot Index was up 0.2%. Platinum rose more than 2% while palladium surged above 6%.
