Veteran London stockbroker Alasdair Macleod believes that a structural squeeze is underway in the silver market. The situation, he argues, is pushing the market toward a breaking point and could propel the precious metal much higher as reality sets in.
In an interview for CapitalCosm, Macleod highlighted the potential end of an era between derivatives suppressing the price of precious metals.
“As long as I’ve been looking at the relationship between physical and derivatives, there have been gold bugs saying the derivatives are used to suppress the price of gold and silver. Undoubtedly, that is true. But if that’s coming to an end, then there is going to be massive buying pressure from that end alone as people move out of paper, “he notes.
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Physical Market Starvation
Reflecting on last week’s COMEX blackout, Macleod starts with China, noting a vast 36 million ounces of stand-for-delivery orders in the system before the outage.
Citing engineering commentary that major data centers typically operate with multiple layers of redundant cooling, he raises the possibility that “the powers that be just pulled the plug on the whole system while they try to sort it out.”
It is important to note that physical delivery on COMEX doesn’t always mean the metal goes out.
“It doesn’t necessarily leave the CME warehouses,” Macleod explains. “The point is that the ownership changes, and it goes into firm hands. It’s no longer available as liquidity in the market, being registered for delivery.”
Once de‑registered, that metal can no longer underpin short positions or arbitrage strategies; it is out of that system.
According to Macleod, physical shortages are everywhere, whether it’s in London or COMEX. Stands for delivery this year are equivalent to roughly 12,500 tons of silver and 1,200 tons of gold—making COMEX, in his words, “the largest precious metals mine in the world.”
China is central to his thesis. Shanghai silver stocks, he notes, have fallen below a key level of about 600 tons – a figure indicating a severe shortage.
At the same time, from January 1, China is “banning the export of silver,” removing what he considers the key swing supply that had helped moderate Western prices. “If they’re withdrawing from the market completely, there is no lid on silver. None whatsoever,” he explains.
A Case Against ETFs
Macleod is skeptical of exchange-traded vehicles as a means of accessing this market. iShares Silver Trust (NYSE:SLV) and similar products are, he argues, “a piece of paper which is a derivative” rather than actual metal.
In stressed conditions, he warns, authorized participants can engage in games involving stock borrowing and share issuance. ETFs remain embedded in the same derivative complex he believes is under pressure.
For now, Macleod believes the market move is overwhelmingly industrially driven, not investor-led. However, the markets do not ignore a bull run indefinitely.
“When you see something going up, you might ignore it for a bit, but then there comes a point where you can ignore it no more, and you’ve got to go and buy some.” In silver, he concludes, “we have yet to see that.”
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