Silver markets have recently changed from high demand to a liquidity crisis, peaking in the last week as metal flows return to London. While markets usually correct themselves, Daniel Ghali, Senior Commodity Strategist at TDS, warns that the recent silver breakout may not last, posing potential risks and outflows. This change from demand boom to liquidity crisis seems to be resolving itself, with liquidity moving back to London markets. This situation could lead to the recent breakout failing and possible large-scale outflows. Although it may not mark the end of the Silver Squeeze saga, it likely concludes this chapter. Future developments might depend on the decline of inventories in Shanghai and New York, or export controls like Section 232 tariffs that could make rebalancing harder. China’s cancellation of tax rebates on platinum raises concerns about disincentives for exporting essential minerals. Currently, it’s advised to resist the urge to invest out of fear of missing out, as the risk/reward balance in the Silver Squeeze has changed. The silversqueeze we experienced in September has shifted from high demand to a liquidity crisis, but that pressure seems to be peaking. We are seeing metal flow back to London, with LBMA vaults reporting a net inflow of 5 million ounces last week, the first increase in three months. This self-correcting pattern is stabilizing the market. As liquidity returns to London, we expect the recent breakout above $32 to fail, leading to notable downside risks. This feels similar to the failed squeeze attempt in early 2021, where prices quickly dropped after an initial spike. Therefore, traders should be cautious about chasing the rally and might consider using put options to protect against a possible drop toward the $26 support level. The risk of large outflows is increasing, and the risk/reward outlook for bullish bets has clearly shifted. This is evident in the derivatives market, where open interest on COMEX silver futures has dropped by 8% since the peak on October 6th. This indicates that speculative long positions are being reduced. This doesn’t mean the silversqueeze story is over, but this chapter is likely closing for now. A new chapter would require a significant reduction in inventories in Shanghai and New York, but currently, COMEX registered stocks remain steady at approximately 45 million ounces. For now, the easiest path seems to be downward, so giving in to FOMO would be a mistake.

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