Gold & Silver Shortage Explodes | David Jensen & Craig Hemke Warn of System Breakdown

Key Concepts

• Precious Metals Market Dynamics: Analysis of gold and silver market performance, particularly in September 2025.
• London as a Pricing Hub: The role of London in setting physical precious metal prices and the implications of its market structure.
• Paper vs. Physical Market: The distinction between trading in paper derivatives and the demand for physical metal.
• Price Backwardation: A market condition where the spot price is higher than the futures price, indicating immediate demand.
• Lease Rates: The cost of borrowing precious metals, with high rates signaling market distress.
• Unallocated Accounts and ETFs: The risks associated with holding precious metals through unallocated accounts and Exchange Traded Funds (ETFs), which may not represent direct ownership of physical metal.
• Rehypothecation: The illegal practice of selling or using client assets (like silver) as collateral for other transactions.
• Physical Shortage: The growing imbalance between the supply of physical precious metals and market demand.
• Fractional Reserve System: The concept of a system where only a fraction of assets are held in reserve, similar to traditional banking.
• Inflation: The increase in the money supply and its eventual impact on real asset prices.
• Interest Rates and Debt: The relationship between rising precious metal prices, interest rates, and the stability of the banking and real estate sectors.

September 2025 Precious Metals Market Wrap-up

This segment provides a comprehensive review of the precious metals markets at the end of September 2025, with a particular focus on silver and gold. The discussion highlights a strong performance in both metals, with gold up 11% and silver up 16% for the month, pushing towards all-time highs. The conversation delves into the underlying market mechanics, particularly the role of the London market and the growing disconnect between paper trading and physical metal availability.

Market Performance and Outlook

• September Performance: Gold experienced an 11% increase, and silver saw a significant 16% rise during September 2025.
• All-Time Highs: Gold has already surpassed its all-time highs, and silver is approaching them.
• October Outlook: The hosts discuss concerns about a potential market pullback in October, with market analyst David Jensen offering insights into the underlying market conditions.

David Jensen's Analysis of Precious Metals Markets

David Jensen, a mining executive and market analyst, provides a detailed perspective on the precious metals markets, emphasizing indicators beyond simple price action.

The London Market and its Limitations

• Dominance of Paper Trading: Jensen highlights that the London market, the primary physical pricing hub, operates largely on a promissory note, cash, or spot market basis. This means traders do not necessarily need to possess the physical metal to sell it.
• Scary Numbers: The open interest and trading volumes in London are described as "scary." A 2011 survey indicated that actual trading volumes were ten times higher than reported figures, suggesting daily silver trading of around 1.5 billion ounces.
• Claims vs. Supply: This volume implies 3 to 4 billion ounces of claims for silver in the market, which is vastly disproportionate to the annual mine supply of approximately 825 million ounces. This points to a predominantly paper-driven market.

Indicators of Physical Market Distress

Jensen points to several key indicators suggesting a physical shortage and distress in the market:

• Price Backwardation: The spot price of silver is higher than its futures price, extending out to 12 months. This signifies a strong demand for immediate physical delivery, with buyers willing to pay a premium even considering storage costs.
• Surging Lease Rates: Lease rates for silver have risen above 5% for contracts extending up to 12 months. High lease rates indicate that those holding physical metal are in demand and can charge a premium for lending it out.
• Sustained Supply Deficits: The market has experienced deficits of 800 million to 1 billion ounces for three consecutive years, and before that for several more. This has depleted available physical supply.
• Squeezed Promissory Note Market: The London promissory note market is being severely squeezed by the physical shortage. Attempts to short the market with paper promises are becoming ineffective as buyers demand physical metal, leading to potential defaults.

The "Fractional Reserve" and Unallocated Metal

• Unallocated Metal as a Problem: Jensen describes the system as a "fractional reserve and digital derivative pricing scheme," where unallocated metal is a significant issue.
• Limited Free Float: Chris Marcus's research suggests the available "free float" for silver in the London Bullion Market Association (LBMA) vaults might be as low as 150 million ounces.
• Static Vault Holdings: Despite global shortages and rising lease rates, vault holdings of silver in London (excluding ETFs) have remained constant since May 2025, at around 140 million ounces. Jensen argues this metal is not available to the market, likely held by private owners.
• Tens of Millions of Ounces Available: Jensen estimates that the truly available physical silver bars (1,000-ounce format, correct purity) are measured in the tens of millions of ounces, explaining the backwardation, surging lease rates, and parabolic price movements.

ETFs and the Rehypothecation Issue

• ETFs and Price Exposure: Jensen reiterates his long-standing advice for investors to hold physical metal in their own name, warning against unallocated accounts and ETFs like the SLV. While ETFs offer price exposure, they do not guarantee ownership of the underlying metal.
• Jeff Curry's Statement (February 2021): Jensen recalls Jeff Curry, head of Goldman Sachs commodity trading, stating that retail investors wouldn't move silver prices because ETFs buy silver and then immediately short that metal into the market.
• Illegal Rehypothecation: Jensen confirms that this practice, known as rehypothecation, is illegal. He suggests that Jeff Curry's statement was an attempt to stop a run on silver.
• ETF Holdings Collapse: During the silver squeeze in February 2021, the iShares SLV ETF saw a significant increase in silver holdings, followed by a sharp collapse after Curry's statement.
• Banks' Motivation: Banks are hesitant for silver and gold prices to go parabolic because it historically drives interest rates higher. This negatively impacts their leveraged positions in debt and bonds, leading to loan defaults and bond devaluation. Additionally, high metal prices offer an alternative to government-issued currency.
• LBMA Overstatement: In the midst of the 2021 silver squeeze, the LBMA admitted to overstating the amount of silver in London by 100 million ounces.
• ETF Holdings Static Despite Price Surge: Since then, despite silver prices rising from around $20 to $47 per ounce, ETF holdings in London have barely increased. This suggests a lack of available silver rather than a lack of investor interest.
• SLV Share Borrow Rate: The borrow rate for SLV shares, which authorized participants can use to obtain physical silver, has surged from 0.5% to 3% in September alone, further indicating physical metal shortages.

The Broader Market Stress and Future Outlook

• Confluence of Factors: Jensen sees a confluence of factors indicating significant stress in the precious metals markets: sustained supply deficits, surging lease rates, price backwardation, and static vault holdings.
• Physical Shortage as the Driver: The market is becoming distinctly physical, and the paper system is failing to address the shortage.
• End of the System: Jensen believes this is the "end of the run" for the system created by the Bank of England in 1987, which has been abused through practices like selling assets that are not owned.
• Potential for Extraordinary Price Moves: The combination of physical shortages and a massive amount of unbacked claims in the London market could lead to extraordinary price movements.
• Impact on Interest Rates and Inflation: A breakout in precious metal prices, as seen in the 1970s, historically leads to a breakout in interest rates. This will have significant implications for banks, the real estate market, and the cost of living.
• True Inflation: Jensen defines true inflation as an increase in the money supply, which will eventually manifest in real asset prices like food and commodities.
• Selling Debt, Buying Real Assets: The trend for the next decade is expected to be selling debt and buying real things, as the true extent of central bank money printing becomes apparent.

Actionable Insights for Investors

• Hold Physical Metal: The primary recommendation is to hold physical precious metals in one's own hands or in a secure storage facility outside of the fractional reserve system.
• Avoid ETFs and Unallocated Accounts: Investors should move out of ETFs and unallocated accounts into actual physical metal while it is still possible.
• Monitor Key Indicators: Investors should watch for continued price backwardation, surging lease rates, static vault holdings, and the price response to the physical shortage.

Conclusion and Next Steps

The discussion concludes with a strong emphasis on the impending repricing of precious metals in fiat currency, with potential for multiples of current values. The hosts encourage viewers to stay informed by following David Jensen on his Substack (jensendavid.substack.com) for daily insights into these critical market dynamics. Spratmoney.com will continue to provide valuable content as the markets enter the fourth quarter of 2025.