Physical Demand Drives Silver Surge as London Loses Control

Physical demand is rewriting the rules of the global silver and gold markets. London’s historic dominance is waning as Asian exchanges, led by the Shanghai Gold Exchange, dictate spot pricing. With Western paper markets failing to reflect true supply and demand, both metals are surging, lease rates are spiking, and ETF suspensions signal a deepening global shortage. 

In the latest episode of Live from the Vault, Andrew Maguire highlights the systemic risks, the exposed positions of major banks, and the rising influence of sovereign and institutional buyers, showing that the era of paper-driven pricing is coming to an end.

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The global silver market is undergoing a fundamental shift. Andrew Maguire revealed that London has effectively lost control, with physical trading in Asia – particularly on the Shanghai Gold Exchange – now setting spot prices. Both gold and silver have been rallying into new staging points, with shallow dips rapidly absorbed by genuine physical demand. 

The divergence between futures and physical reality is now stark, emphasising that true bullion flows drive today’s market dynamics.

Physical tightness in silver has reached unprecedented levels. Lease rates have spiked above 24–30%, while COMEX futures are in extreme backwardation through 2028 – an even more pronounced distortion than during the 1980 Hunt Brothers squeeze. 

In India, asset managers including Kotak Mahindra, UTI, and SBI have suspended new silver ETF subscriptions due to the inability to secure physical bullion. Meanwhile, the US market remains a glaring outlier, with COMEX and LBMA prices artificially suppressed despite record-high spot levels across major currencies. The market is signalling a fundamental revaluation is underway.

Asian physical markets are now the global price driver. Shanghai’s international exchange is draining Western inventories, while China’s export controls have tightened supply further. LBMA clearing members are scrambling to transport silver from COMEX warehouses to London to meet unallocated delivery demands – short-term relief that fails to address the underlying scarcity.

Gold is experiencing a parallel surge in demand. Central banks, sovereign wealth funds, and institutional investors are moving toward portfolios allocating around 20% to gold. De-dollarisation trends, physical supply constraints, and systemic weaknesses in Western paper markets are driving a potential revaluation between $5,000 and $8,000 per ounce.

Major US banks – including JPMorgan and Citibank – carry significant unallocated silver derivative exposure, leaving them vulnerable as physically backed markets assert real pricing.

Today’s gold and silver markets signal a decisive shift: physical demand now drives pricing, while paper markets fail to reflect true supply and demand. London’s unallocated system is at risk of default, and strategic actors- led by Asian exchanges and sovereign buyers – are increasingly dictating bullion flows. 

For investors, this might underscore the growing necessity of physically backed holdings to protect wealth amid tightening global supply and a market poised for revaluation.

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The opinions, analyses, and predictions expressed by Andrew Maguire and any guests in this content are his own and do not necessarily reflect the views, positions, or official policies of Kinesis.

This information is provided for informational purposes only and should not be considered financial advice. Kinesis assumes no responsibility for any investment or financial decisions made based on the information provided. Please consult with a qualified financial advisor for personalised guidance.