Conversations about what exactly caused the most recent rise in silver price have skyrocketed in recent months. Many people think that the squeeze that started earlier this year in the nickel market is about to happen in the silver market as well; likewise, this is not an absurd assertion. The fact that major physical silver inventories, primarily the LBMA and COMEX vaults, have continued to see a rapid drain of physical silver is a significant contributor to the evidence supporting a squeeze in the silver market.

The LBMA began as the largest silver exchange in the world, but over the past nine months, the total number of ounces of silver held in the LBMA vaults has decreased. The vault currently holds 916.5 million ounces of silver, according to reports from August of this year—the lowest total since mid-2016. Even though it may not seem like much, the LBMA vaults held nearly 1.71 billion ounces of silver at this time last year. This was a decrease of 21.7 percent in just one year, and the situation only gets worse. Among the 916.5 million ounces in the LBMA, 13 silver ETFs and private clients of Bullion Vault and GoldMoney already own 592.8 million ounces. The LBMA's vaults now hold just 323.7 million ounces of unclaimed silver. Considering that 254.5 million ounces were drained this past year prior to any significant price increase, what is left will not last long in the event of a significant rush from public retail investors.

Silver used to frequently leave the LBMA vaults only to be registered within the COMEX vaults in the past. However, that is not the case this time around. It is essential to comprehend the distinction between the two vault categories utilized by the COMEX before discussing the decline in silver observed within the vaults. The first is the "Registered Inventories," which can be delivered to fulfill a maturing commodity and options contract that requires the physical delivery of their metal because these ounces do not have an owner. The second is called "Eligible Inventories," and these ounces cannot be delivered; The silver can only be designated by the owners of this category to be sold and delivered, placing it in the Registered Inventory. Having said that, there were 150 million ounces of silver registered at the end of 2020, 80 million at the end of 2021, and only a little over 41 million ounces left in the Registered Inventory at this point, which is a sign that new buyers are flocking to the market or that larger players have sped up their accumulation.

Nobody should be surprised by the dramatic reduction in these significant physical silver inventories. There are 70 million ounces of silver produced annually worldwide, and 15 million ounces of recycled silver bring the total to 85 million ounces annually. There is a growing demand of 95 million ounces at the moment. due to a shortage of more than 10 million ounces and the necessity of silver for technological advancement. The delivery delays that have already occurred will get worse as a result of this gap, which will increase the pressure on both the spot price and the ounce premiums.

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