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Money Metals News Alert
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February 10, 2025
– Gold and silver prices rose last week with gold closing at a new all-time
high.
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Gold finished the week up
$$62/oz (+2.2%), while silver rose $0.40/oz (+1.3%).
Both precious metals are
up again sharply this morning.
The equity markets have
sloughed off last Friday???s negative jobs report. The Bureau of Labor Statistics
reported job creation in January was lower than expected, and it revised jobs
numbers lower for 2024.
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The latest revision follows multiple
prior downward revisions, again raising questions as to whether BLS officials
purposely inflated jobs numbers in the original reports to benefit Joe Biden???s
reelection campaign.
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Gold : Silver Ratio (as of
Friday's closing prices) – 89.7 to
1
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Is the Shortage of Large Bars Temporary?
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Traders with an obligation to deliver
physical bars in the U.S. have found the available inventory is in short supply.
They have been rushing to import supply from London and/or paying hefty premiums
to secure the bars they need. Others have been capitalizing on arbitrage
opportunities.
A premium first appeared in December
in trades called Exchange of Futures for Physical (EFP). The premiums have mostly
been driven by the possibility of new tariffs on metals being imported to the U.S.
Since then, at least seventy five tons
of London silver and 5 tons of London gold has exited LBMA
vaults.
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Most of that was
transferred to COMEX vaults here in the U.S.
The silver transfer is
particularly significant, as it represents about 10% of the total remaining LBMA
stocks.
President Donald Trump
delayed the implementation of 25% tariffs on Canadian and Mexican imports for at
least a month, but the above dynamic persists.
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In fact, the crunch for inventory
appears to have bled over into gold and silver Exchange Traded Funds (ETFs). Fees
for borrowing shares of both the GLD and the SLV exploded higher over the last
week.
The unprecedented spike in these
borrowing costs is connected with the extraordinary rise in premiums for EFPs. The
root cause of both is high demand for commercial gold and silver bars to deliver
to the U.S.
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More specifically, the
cost to borrow SLV shares, which is normally about 0.5% annualized, reached 12% on
Friday. The previous all-time high was 7% for a brief period in 2022. The number
of shares available to borrow is now a paltry 10,000, down from about 10 million a
week prior.
Oftentimes rising demand
for shares to borrow is a signal that speculators are expecting share prices to
fall.
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They normally borrow shares to sell
them short, intending to repurchase shares at a lower price later to return to the
lender.
However, the current interest in
borrowing GLD and SLV is something different this time. There are almost no shares
available to borrow despite the fact shareholders can collect an all-time high fee
for lending – without giving up their long position.
The demand for shares to borrow is
likely coming from Authorized Participants (APs) rather than speculative shorts
and hedgers. The APs for SLV and GLD are large banks and brokerages, including the
bullion banks.
The APs are the only parties
involved with an ETF who are allowed to redeem baskets of shares for the physical
bars held by the ETF.
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These APs can redeem a
basket of 50,000 SLV shares for a pro-rata share of physical silver bars. Upon
redemption, the shares are canceled and the total number of shares outstanding is
reduced by 50,000.
The current cost to borrow
shares relative to the available premium in an EFP trade makes borrowing shares to
capture the premium unprofitable unless the borrowing rate falls quickly.
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It's worth noting that borrowing ETF
shares for the purpose of redemption does not put downward pressure on the share
price, as opposed to borrowing to sell the shares short.
In fact, redemption of borrowed shares
could eventually lead to upward pressure on the price. The borrower of the shares
is still on the hook with the lender and will need to come up with different
shares to return – one way or another.
Ronan Manly with Bullion Brief, reports
the shrinking inventories in London are impacting markets.
The spikes in premiums and
extraordinary borrowing costs may be temporary. They should go away once the
questions over tariffs are answered and prices force a new equilibrium between
supply and demand.
If there is a serious shortage of
inventory, though, the price of gold and silver may need to go significantly
higher.
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This week's Market Update was
authored by Money Metals Director Clint Siegner.
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