“Houston, we have a Problem”: 85% of Silver in London already held by ETFs.

By Ronan Manly – February 7, 2021

With the ongoing #SilverSqueeze and huge associated dollar inflows into silver-backed Exchange Traded Funds (ETFs), it is now time to look at which of these ETFs store their silver in the LBMA vaults in London, England, and to calculate how much physical silver these combined funds store in those London vaults.

These LBMA London vaults are run by seven vault operators which comprise three bullion banks JP Morgan, HSBC and ICBC Standard Bank – and four security firms – Brinks, Malca-Amit, Loomis and G4S.

While many eyes have been fixated on the mammoth iShares Silver Trust (SLV), that is only part of the picture, and there are 13 additional silver-backed ETFs that store their silver in London that people may not be aware of.

By calculating how much silver the ETFs hold in London , we can determine how much available physical silver remains in the London LBMA vaults that is not already held by these ETFs. This then gives an estimate of how much room these ETFs have before they hit a wall of not being able to source any more silver in the London vaults without having to import it or ship it in. And the answer, as you will see below, is not that much room at all.   

Because out of the 1.08 billion ounces of silver (33,609 tonnes) that the LBMA claims is stored in the London vaults (as per latest LBMA data to end of December 2020), a whooping 83.3% or 28,007 tonnes (900.42 million ozs) is already accounted for by these ETFs. This is based on ETF holdings as of end of day 5 February 2021.

Add in another 22.22 million ozs (691.3 tonnes) of silver held by Bullion Vault (BV) and Gold Money (GM) in the same London vaults, and there are a massive 28,698 tonnes (or 922.65 million ozs) of silver accounted for in the combined ETFs and in the BV/GM holdings. That’s 85.4% of all the silver that the LBMA claims is in the London vaults.

ETFs / ETCs / Transparent holdings store 28,698 tonnes of Silver in LBMA London vaults, over 85% of all the silver in LBMA London. Sources – Provider websites

This leaves only 4,911 tonnes of silver from the LBMA total of 33,609 tonnes that is not already accounted for. That’s a mere 14.6% of total London vaulted silver stocks. The criticality of the situation was even more acute based on end of day data from 3 February 2021, when based on the same calculation approach, there was only 4,366.7 tonnes of silver in the LBMA vaults (13% of the total) that were not accounted for by silver ETF and other transparent silver holdings. On that day, a full 87% of all the silver in London was held the ETFs and other transparent holdings.

Reported Silver Holdings

Importantly, these holdings of Exchange Traded Product (ETP) silver inventories are part of reported silver bullion stocks. As the

Silver Institute 2019 annual report (written by Refinitiv) explains:

“Identifiable bullion stocks can be separated into two categories: reported and unreported bullion stocks.

Reported stocks consist of industry, exchange, ETP and part of the government stock category.

Unreported stocks … consist mainly of government and custodian vaulted stocks.”

And notably, says the Silver Institute report, the unreported category is almost exclusively made up of custodian vaulted stocks of silver. According to Refinitiv:

Terminal market inventory finds its way into Europe, driven by refiners off-loading their metal in times when investment demand is weak. The European and U.S. bullion banks in collaboration with major storage providers remain the main facilitators.

Here, “terminal markets’ refers to commodity markets that are trading centres as opposed to production centres. When custodian vaulted stocks rise, says Refinitiv, it is “partly a reflection of weak investment demand more than anything else”. The converse is also true. When investment demand is strong, the unreported custodian vaulted stocks fall.

And where have we seen investment demand being strong right now? In the physical market of course, all the way from retail to wholesale to mints to refineries. So now is not a time when there will be “refiners off-loading their metal” into vaults because of weak investment demand. In fact the opposite is to be expected. 

In short, strong investment demand leads to depleted unreported custodian vaulted stocks. And Exchange Traded Products have at all times to compete with the rest of the market for the pool of available silver in the London vaults of the storage providers.

Allocated Silver held by Wealth Sector

And we haven’t even factored in yet the allocated silver holdings that the wealth sector (investment institutions, family offices and High Net Worth individuals) hold in the LBMA London vaults, silver holdings which are also part of the unreported custodian vaulted stocks category.

And that, according to people I’ve talked to in the market, could be anywhere from 30 million and 50 million ozs (933 tonnes to 1,555 tonnes). Which would leave only between 3,300 tonnes and 3,900 tonnes of silver in the London LBMA vaults which is not held by ETFs and the wealth sector. And that is not a lot of silver for 14 ETFs to compete to secure.   

To put this into perspective, over the 3 trading days from Friday 29 January – Tuesday 02 February, the iShares Silver Trust (SLV) just by itself claims to have added 3415 tonnes of silver, of which 1,070 tonnes was on the Friday 29 January, 579 tonnes on Monday 01 February, and another 1765 tonnes on Tuesday 02 February. This 3415 tonnes equates to 14% of annual mine supply and 10% of all the silver that the LBMA claims is in London vaults.

Another 3-4 days of similar magnitude dollar inflows just into SLV would require SLV to source another 3000-4000 plus tonnes of silver, which is mathematically impossible based on the amount of silver said to be in the London vaults. This could cause the SLV to literally seize up and cause all the other silver ETFs with London storage to seize up too. This is assuming no new silver arriving into the London market in quantity at this time. Which is not an unrealistic assumption to make given that there is currently a global demand spike for physical silver. In other words, “terminal market” physical silver inventory would not be “finding its way into Europe” since global investment demand is strong, not weak.

Painting the Tape in Paper Silver

Which is why it now looks like the bullion banks torpedoed the COMEX / LBMA price of silver on Monday 1 February and Tuesday 2 February so as to paint the tape and attempt to break investor sentiment and prevent further inflows into the silver ETFs. But if that was the plan, the bullion banks didn’t succeed, since total ETF holdings only ebbed marginally over the rest of the week following the bullion bank price onslaught.

Its also important to remember that the LBMA data on silver vault stocks in London covers all forms of silver bars and silver coins held in the LBMA vaults, not just the large Good Delivery silver bars http://www.lbma.org.uk/gld-silver-bar-specifications.

As the LBMA explains about its silver vault data:

“All physical forms of metal are included: large wholesale bars, coin, kilo bars and small bars.”

However, ETFs are limited by their prospectuses to only purchasing Good Delivery silver bars (which normally weigh 1000 oz each). Therefore, since the LBMA data covers all forms of silver bars and silver coins in the London vaults, the LBMA data of 33,609 tonnes total stock in London may be overstating how much of that is Good Delivery silver bars. Which means that the ETFs have even less leeway in sourcing silver inventory than would at first appear.

Note also that the Bank of England does not hold silver, because central banks do not hold silver at the Bank of England. In fact, central banks rarely if ever hold silver as a reserve asset. So unlike gold, bullion banks cannot borrow silver from central banks to augment supply and firefight demand.

Don’t forget also that professional investors and institutions hold huge quantities of unallocated ‘paper’ silver positions in the London LBMA market, in the form of claims against LBMA bullion banks for silver which is not readily available. This unallocated silver is really ‘silver credit’ or fractionally-backed / unbacked silver positions which have been created by the bullion banks to absorb demand that would otherwise have gone into physical.

As former LBMA CEO Stewart Murray euphemistically said in 2011: “various investors hold very substantial amounts unallocated gold and silver in the London vaults”. But what Murray failed to explain is that unallocated silver does not exist in a vault because it is not physical. It is a merely a paper claim on a bullion bank for a quantity of silver that the bank is obliged to find somewhere if the claimant happened to move to execute the claim.  

The Squeeze is On

In short, the scarcity of available silver in the London LBMA vaults is far more advanced than most people think. And with 14 ETFs, and not just SLV, competing for available silver, the bullion banks and storage providers are now in a “Houston, we have a problem” mode. A problem which you will see from a quick review of these 14 silver-backed ETFs and Exchange Traded Products (ETPs) which claim they are fully physically backed with silver stored in LBMA vaults in London. First we will review all the other ETFs, and finally end with the big one SLV. The review below uses a similar framework to the 2017 BullionStar article “How Many Silver Bars are in the LBMA Vaults in London?”, and uses some helpful updates last week from . 


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