London Silver Lending Costs Retreat from Record Highs

London silver lending costs have retreated from record highs, signaling the return of more liquidity to the market and an easing of the squeeze experienced earlier this month.

Data compiled by foreign media outlets shows that silver lease rates (the annualized cost of borrowing silver in the London market) fell to 5.6% on Monday, after soaring to a record high of 34.9% on October 9.

Earlier this month, a lack of liquidity in the London silver market triggered a global precious metals "scramble." Because benchmark prices in London were significantly higher than in New York, some traders took extraordinary measures – booking transatlantic cargo holds to transport silver bars to profit from the price difference. This is an expensive option, typically only used for gold.

Initiatives by the London Bullion Market Association

Ruth Crowell, CEO of the London Bullion Market Association, indicated that this historic "squeeze" has prompted the LBMA to consider publishing weekly silver inventory levels, adding that silver inventory would take precedence over gold. Inventory data for both metals in the London market is currently published monthly. More frequent data updates would provide the market with an early warning of any potential supply shortages in the future.

"The reason silver is being prioritized is that it's been the market focus of late," Crowell said on Monday at the global precious metals conference in Kyoto, Japan. "Any time gold is involved, the Bank of England has to be part of it, and publishing gold inventory levels weekly could be a longer process."

After posting its first weekly decline since mid-August, gold and silver continued to fall more than 1% on Monday, due to progress in U.S.-China trade negotiations, which weakened safe-haven demand in the market.

Impact of Monetary and Fiscal Policies

On Monday last week, a strong upward movement had pushed gold prices to a historic high above $4,380 an ounce, but gains then began to reverse due to the emergence of overbought signals.

However, gold prices are still up 55% this year, and silver prices are up more than 60%, supported by central bank purchases and the so-called "currency devaluation trade" – where investors avoid sovereign debt and currencies to protect themselves from runaway budget deficits.

Kyle Rodda, senior financial market analyst at Capital.com, said: "We are now returning to a more fundamental basis, a more rational market. Due to trade progress, there were some knee-jerk reactions in the market, which were better than anyone expected, and market enthusiasm has now subsided, and sentiment is trending towards neutral. The reason gold is getting so much support is the future outlook for loose fiscal and monetary policies. If things stay the same, the upward trend for gold should continue."