Silver Demand In Form Of ETFs Spikes Causing Market Mayhem Golden Opportunity To Accumulate 90% Silver Coins Silver Lease Rate Soars To 200% "Just count the stuff that's coming from the US. 180 tons of silver suggests that this is now more normal pricing. The spot market and futures market come into more standard relationship. How much of a decline off of the $53.56 cent high— Do we see five, ten percent from that? A steeper decline than that? That remains to be seen. What is intriguing is the possibility of spot and futures market volatility being more extreme, even as physical metals—the OTC market—finds its mojo." —David McAlvany * * * Kevin: Welcome to the McAlvany Weekly Commentary. I'm Kevin Orrick, along with David McAlvany. Well, David, my favorite weekend for the company every year just occurred. We had our McAlvany Wealth Management clients out in rainy Durango, but it was still beautiful. You put a lot of time and effort into meeting with the clients that want to meet with you, so— Often I wish for you to have a nice vacation after this weekend, and that didn't happen. So I want to talk about what this weekend incorporated after our meeting with the clients. David: Yeah. Well, a lot to cover today. First, thanks to our asset management clients who were able to come to this year's conference in Colorado. We're honored to serve you and pleased you could make the trip to Durango. That face-to-face time is precious to us. And for those MWM clients that could not make it, there will be a full video recording of the weekend's presentations available shortly. What you missed was the meals, the conversation, the changing leaves, and, as you mentioned, this year, surprisingly, a good bit of rain. Kevin: Pretty wet. David: Yeah, it's a client-only conference, and everybody in the hard asset equity strategy will get it. No need to request it, but if you'd like to become a client, please let us know. I can tell you that the team and the process and the unfolding opportunity are worth the inquiry. Kevin: Well, and even working with the guys over at MWM, hearing Morgan speak each week, I loved to hear his presentation again. He really put that together well. Philip Wortmann, Robert Draper, you. It's nice to know that you've got people thinking on a daily basis, and a shared worldview is very, very important with investing. David: Yeah. Thank you to our team at MWM and our advisors at MPM. There's a lot of effort that goes into these weekends, and I'm grateful for the time and commitment. Many of you traveled from remote work locations out of state, and I have to say, as grateful as I am for technology helping facilitate that arrangement, you're missed, and it's always a pleasure to spend time together again. Kevin: It was nice to have some people that I normally just work remotely with. It would've been fine if you would've just had a quiet weekend with your clients, but actually, gold and silver weren't quiet at all. There are some real dynamics going on right now, Dave, that actually would take us back to the 1970s—the last time we had seen some of the chaos. And so talk about that a little bit. David: Last week, we surpassed 4,000 an ounce, and this week we're near 4,200 for gold, silver ripped through 50 and only slowed this week at $53.56 cents. At the conference on Friday morning, I was sharing about rapid liquidity issues impacting the silver market, and that continued in severity through the weekend. There are already many internet misconceptions. So as someone that did not have a weekend and was busy engaging with market insiders on many an issue, I'll share a few insights. Kevin: I was talking to our bullion manager, and I said, "How was your weekend?" And he said, "Well, I got a call Friday night while you were at dinner, Dave, with our clients." And he said, "I knew there was nothing I could do really until Sunday, but we had a lot to do." And so he was here talking with you Saturday. You guys were together Sunday doing things that people who run a 53-year-old precious metals business sometimes have to do. David: Sure. Silver demand in the form of ETFs was significant last week, well above recent averages. And the annual inflows now exceed $2 billion into silver and about 26 billion for gold just in Q3. Kevin: So two billion is not that much relative to the gold side, but silver is a thin market, isn't it? David: It is. So why do I start with investor appetite for ETFs? Because the destination for those real physical ounces in the form of thousand-ounce bars in the case of silver is London. Kevin: Okay. So if I've got this right, one of the big problems that we had this last week, basically, is a lot of that silver had been moved over to New York, but it actually needed with the ETFs to be delivered in London in a timely manner. David: Right. Plenty of product, just not in the right place. Kevin: Okay. David: So pre-tariff traders were concerned enough about the implications from tariffs to move a significant quantity of metals to New York. Now, with a surge in ETF demand, we find, not absolute shortages of silver, but shortages in the right location. So, as markets do, the solution is being solved by market participants who can arbitrage London premiums and get paid for moving New York ounces back across the pond. Kevin: So let's break this down a little bit because last week I had talked about being on the trading floor in New York back in the 1990s. Now that's a futures market, that's when you're buying contracts. I had mentioned Augie at aught. That basically was an August delivery contract at zero zero for gold. But the spot market has always existed in London. Explain the difference between those two markets. David: Yeah, what's made the weekend so interesting is the difference in systems between the futures market here in the US and the spot market in London. There are two different trading systems. One that is in real or near real time. That's the spot market and one that is for future prices and future delivery dates. Again, which can be facilitated with those contracts. Kevin: And London is spot? David: London is spot and New York is the futures market. Kevin: Right. David: The spot market came under pressure first. A return to a casual comment a moment ago, we had inflows, have had inflows, into silver of about $2 billion, and that's helped propel the price over 70% year-to-date versus gold inflows via the ETFs of $26 billion in the third quarter, Kevin: Just the third quarter. What is it for the year so far? David: 64 billion year-to-date, according to the World Gold Council. Radically different sized markets. Kevin: Two billion to 64 billion? Yeah. I would say so. David: Yep. So following the first half of 2024, with net outflows—and again, just go back in time to 2024—first half outflows of seven billion. In the second half you had inflows of 10 billion. So here, we have an additional, 2025, 64 billion. Investors are discovering the allocation necessary to wealth preservation. Silver remains a very small market, relatively speaking. That fact alone will continue to surprise market participants as they try to position in silver ounces. It's a small market. So back to the story. Kevin: Okay. So what occurred this weekend, the best that I can understand, had something to do with the silver being in the wrong place and it needing to be somewhere else. And there's a cost to that, isn't there? There's a cost to borrowing or paying for something that's in the wrong place. David: Yeah, ETF demand bumped higher last week, forcing the shift in geography from New York to London. Plenty of silver, but in the wrong place. That's the gist of it. And the implications have been that silver in the spot market has temporarily dislocated, with lease rates exceeding 200%. Kevin: Okay, so let's talk about lease rates before we go on because a lease rate, I didn't know what a lease rate was until the mid-'90s Dave, and I was visiting a metals firm, Mocatta Metals in New York, and I walked into the room. Mocatta is a 500-year-old precious metals firm. It goes way, way back. But I talked to a man named Steve Abriano who had run the operation for years, and I thought I was going to see something different, but all I saw was the old green screen monitors, and they were the blinking cursor and I was standing next to one and it said, "Nothing for now. Thanks." On the screen. And I asked him, I said, what is this? And he goes, "Well, that's the Russian central bank. They don't need to borrow any gold." And he told me that they make a lot of their money at Mocatta loaning gold that's in one place to another place for a fee. There's an interest rate fee. So when you're talking about lease rates, a lease rate is that cost. David: That's right. So to borrow ounces as silver is bought and then settle to a new customer, or if you're a refinery and you take a lease to finance your inventory and then produce product for the end customer, that could be one ounce coins, 10 ounce bars, what have you. Kevin: And it's normally at like one and a half, two percent, isn't it? A lease rate, maybe three? David: Even less. Even less, but this whole event, again, the lease rate has skyrocketed. 200% is something you see once in a hundred years. Kevin: Two hundred percent. You told me yesterday 200%, and I walked away thinking it was 200 basis points. No, 200%. David: Yeah. So the drama is in hedging inventory. Hedging spot silver has increased over 30 cents per day per ounce hedged. Kevin: Wow. David: Again, it's basically your silver price. 200% of that divided by 365, you come up with your daily rate. Kevin: So give us an example of what that would cost, let's say on 50,000 ounces. David: So sitting on inventory hedged, as so many in the market do because you don't want to take risk. 50,