Insights 
VT 
Silver markets have recently shifted from a demand-driven surge to a liquidity crisis, which has peaked over the last week as metal flows incentivise back to London. While markets are self-correcting, Daniel Ghali, Senior Commodity Strategist at TDS, suggests the recent silver breakout may not hold, posing downside risks and potential outflows.
The transition from a demand boom to a liquidity crisis appears to be self-resolving, with liquidity making its way back to London markets. This scenario may lead to the recent breakout’s failure and potential large-scale outflows. While this may not signify the end of the Silver Squeeze saga, it may mark the close of this part of the story.
Future developments could depend on the erosion of inventories in Shanghai and New York or export controls that might hinder rebalancing further, such as Section 232 tariffs. China’s cancellation of tax rebates on platinum fuels concerns over disincentives to critical mineral exports. Current advice suggests resisting the urge to invest amid fears of missing out as the risk/reward dynamic in the Silver Squeeze has changed.
The silversqueeze we saw in September has transitioned from a demand surge to a liquidity crisis, but that pressure now seems to be peaking. We’re seeing metal flow back towards London, with LBMA vaults reporting a net inflow of 5 million ounces last week for the first time in three months. This self-resolving mechanism is stabilizing the market.
As liquidity returns to the London market, we expect the recent breakout above $32 to fail, creating significant downside risk. This pattern is reminiscent of the failed squeeze attempt back in early 2021, where prices quickly retreated after an initial spike. Therefore, traders should be wary of chasing the rally and might consider put options to hedge against a potential drop toward the $26 support level.
The risk of large-scale outflows is growing, and the risk/reward profile for bullish bets has clearly reversed. We’ve seen this reflected in the derivatives market, where open interest on COMEX silver futures has dropped by 8% since the peak on October 6th. This indicates that speculative long positions are being unwound.
This doesn’t mean the silversqueeze story is over, but this chapter is likely closing for now. A new chapter would require a significant erosion of inventories in Shanghai and New York, but currently, COMEX registered stockpiles are holding steady at around 45 million ounces. For now, the path of least resistance appears to be lower, so succumbing to fear of missing out would be a mistake.
