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The gold and silver prices remained under pressure to start the week on Monday, with the price of both metals down substantially.

The gold futures are currently down $138, and just ticked below the $4,000 mark.

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Meanwhile, the silver futures are down $2.08 to $46.51.

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Perhaps just as significantly, you can see that the spot price is down $2.18 to $46.43, which means that the spread, that reached as high as $3 into backwardation (spot trading over the futures), has now narrowed to just 7 cents.

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Bloomberg is reporting on how the pressure in the silver market has eased, and while they don’t directly say this, it’s the result of silver leaving the Comex (and some from China too), and presumably flowing to London and/or India.

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The cost of borrowing silver in London has retreated from a record high, a sign that greater liquidity has returned to the market and brought some relief from a squeeze earlier this month.

Silver lease rates – which represent the annualized cost of borrowing metal in the London market – fell to 5.6% on Monday after surging to an all-time peak of 34.9% on Oct. 9, data compiled by Bloomberg show.

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I was searching for any indication that silver actually reached India and resolved the shortage, although I don’t think there’s any evidence that that’s happened yet (and that Bloomberg article from a week and a half ago said that JP Morgan is telling clients that they’re not expecting any silver in India until November), and the Times of India confirms what I asserted above about the silver shipments easing this current phase of the squeeze.

So that’s helped to resolve the London shortage, although what’s less clear is how permanent of a solution that will be.

About 26 million ounces of silver have left the Comex vaults since the breakage in the market on October 9th. Although given that the average daily turnover at the LBMA is about 250 million ounces, and the free float is currently at 153 million ounces, is 25-35 million ounces going to resolve the situation, or just buy a little more time?

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(the green ‘other’ is the London free float)

Former JP Morgan Precious Metals Managing Director Robert Gottlieb was on KITCO last week, and he said that he thinks 100-150 million ounces would be needed to normalize the silver market.

I’ve seen reports saying that some silver did also come from China, and I’m working on tracking down just how much.

But at least from what I can see today, the situation remains far from over. And especially given how the lease rates have dropped back down as well, which is perhaps one of the best true indicators of how tight or fragile the London market is, it’s not surprising to see the price fall. Especially given that gold is also down as much as it is today.

As I’m finishing this article, the prices have already recovered slightly, and we’ll see what the rest of the afternoon holds.

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Although for a better understanding of why it seems like the gold and silver prices will almost have to rise over the longer term, I think it would be worthwhile for you to see this video posted on Friday about how the thinking about gold in Washington is likely changing.

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