The Physical Metals Shortage Is Real And This Time It’s Global

It appears that despite the games being played in the paper markets, the physical metals shortage is real and this time it’s global.

Within hours King World News will be releasing a powerful and timely audio interview. For now…

Supply squeeze continues
November 14 (King World News) – Alasdair Macleod:  It’s now China’s vaults running short on gold and silver. But European ETF profit-taking is providing some minor supply, giving the London market temporary relief.

The resilience of precious metal prices was demonstrated this week as both gold and silver rose towards new high ground. In European trading this morning, gold was $4170, up $169 from last Friday’s close. And silver at $52.75 was up $4.45 on the same time frame having touched its mid-October all-time high of $54.35 on Wednesday.

Both markets are facing global liquidity problems.

There are now signs that speculators are beginning to buy gold futures, with open interest on Comex jumping by some 30,000 contracts in the last seven trading sessions. If it continues, physical liquidity will face additional challenges. And as the record of open interest shows, there is considerably more room for speculator purchases before the Comex contract becomes definitively overbought. The solid line in the chart below is the long-term average, which we can take as neutral and which is the current level of open interest:

The important question is whether gold has more correction/consolidation to come or has the opportunity to buy the dip slipped by. Next up is the technical chart:

The price didn’t quite dip back to the 55-day moving average, and conventional charting measures such as relative strength indicators tell us gold is wildly overbought. This is why so many analysts who are principally guided by charts believe that gold has peaked for now and should at least spend a few months consolidating at lower levels. But they ignore both the market position, and that the gold chart is a chart of currency decline, rather than of a gold bull market.

Unlike silver, gold has not gone into backwardation. Instead, bullion banks appear to be hedged and are prepared to raise prices in order to keep level books. For evidence, look no further than the recent LBMA conference, where an opinion poll of attendees came up with an average forecast for 2026 of just under $5000. 

Bullion banks have a problem in London, where leases are not being renewed sufficiently by central banks storing their earmarked gold at the Bank of England. It is this bullion which provides physical liquidity for the forward market. Meanwhile, according to the World Gold Council, the squeeze from ETF demand lessened significantly in October, with profit-taking from Europe and the UK. But net demand from North America was enough to increase total ETF holdings by 54.9 tonnes over the month. Weekly totals for October are illustrated in the WGC’s chart below:

The economic background is deteriorating for the dollar, which is good for gold. The Fed has switched its policy away from controlling inflation to providing liquidity by stopping QT and re-embarking on QE. In other words, the printing presses are being fired up. That the Fed has to do this at a time when inflation is running at 3% and likely to go higher on a six-month view shows how impossible it is for the authorities to stop the dollar losing purchasing power. To do otherwise will mean stepping over dead bodies in the private sector. That is what the central banks buying gold understand.

Additionally, there are geopolitical factors. China is making plans in plain sight to link its yuan to gold for trade settlement purposes, which further undermines the dollar’s relative outlook along with those of all G7 currencies. Whatever its speed, the direction of travel is for the gold/dollar exchange rate to increasingly favour gold, which is why prescient actors are stacking it, irrespective of temporary setbacks in the price.

Silver’s outlook is nakedly bullish. Having been suppressed for decades and after significant supply deficits in recent years, liquidity has now dried up. Worse still for industrial users, investors have begun buying ETFs and small bars as the cheap way into the gold story. 

The backwardations between silver spot and Comex futures have virtually disappeared, but liquidity has barely improved. Instead, industrial demand is clearing out Chinese vaults, with stocks at the Shanghai Futures and Gold Exchanges falling to dangerously low levels. And in gold, the shorts are said to be rolling over their delivery obligations because they have nothing to deliver, as the tweet below demonstrates:

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