Market shock: Suspicions of a potential "attack" on the London silver market – Chip manufacturers frozen

Serious suspicions of potential manipulation are haunting the London silver market, with Dutch trading expert Karel Mercx highlighting the discrepancy between the silver swap rate and US interest rates, which can be used as an indirect indicator of the physical silver shortage in the London market. "The one-year silver swap rate minus the US interest rate is now at -7.18%. This distortion explains why the silver rally has not ended. Only when we reach the red line will supply and demand normalize," he states. Six days ago, Mercx also wrote that "the one-year silver swap rate minus the US interest rate is now almost -7%! This distortion is the key reason why the silver rise is not over. This difference should be positive, since the silver needed in a year comes with storage, insurance, and financing costs."

Further explanation

The silver swap rate is a critical component in the global trade of precious metals. It exists because large entities such as banks, producers, industrial users, and investors constantly exchange silver for dollars without moving physical metal from warehouse to warehouse. This mechanism allows the physical London trade to remain closely linked to the New York financial market. However, this system is now under pressure. Physical silver today is nearly 7% more expensive than silver to be delivered in a year. Swap agreements were designed to avoid moving the metal around the world, but today silver is moving because buyers are demanding delivery of the physical metal. Holding physical silver is neither easy nor cheap. A position of $1 million weighs several hundred kilograms, distributed across dozens of heavy bars that require storage space, insurance, and security. "This demand is now being priced into the market. As long as the difference between the one-year silver swap rate and US interest rates remains below the red line, the upward pressure on silver continues. No one knows where supply and demand will reconnect."

Prolongation of the physical silver shortage in London

Mercx published a chart showing the distortion trend, which I have added with a trend arrow: Image 1 – Difference of one-year silver swap rates with US interest rates (December 23, 2025); source: Karel Mercx x.com.

Note that the distance from the normalization red line increases as the silver shortage in London intensifies. The London silver market is deconstructing and not normalizing.


The image of an attack on the London physical silver market

This is what an "attack" on the London physical silver market looks like, where holders of unallocated credits for silver ownership and delivery, at the margins, begin to demand delivery of the physical metal. The massive leverage of London paper compared to the physical silver available for delivery creates the potential for a very rapid London fallout. The difference between silver futures contracts on the SHFE and COMEX is extremely large, encouraging flow from London to Shanghai.

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