‘It Went to Mumbai’: The Real Reason London Silver Vaults Are Draining | Phil Baker
Summary
Silver Bull Case: The guest outlines a strong multi-year setup for silver driven by deficits, industrial demand growth, and a compressing gold-silver ratio.
Physical Market: Emphasis that physical is king, with COMEX/LBMA inventory stress, delivery squeezes, and ETFs and India drawing from the same pool.
India: India is described as the primary demand driver with imports quadrupling and sustained buying even at record rupee prices; tracking imports is the key indicator.
Industrial Silver: Solar, EV, and electronics demand are surging; users are stockpiling 6–9 months of inventory and thrifting cannot keep pace in the next 12–18 months.
Supply Constraints: Mine supply is capped below prior peaks this decade due to permitting delays and long lead times; recycling is structurally limited and insufficient to balance deficits.
Market Outlook: The gold-silver ratio could fall toward 50–60, implying higher silver prices amid persistent tightness and potential periodic squeezes.
Companies: No specific public companies were pitched; the discussion focused on sector-level exposure to precious metals and the silver value chain.
Risks: A slowdown in India, policy shifts, or inventory normalization could cool prices, though U.S. critical mineral recognition provides a supportive backdrop.
Transcript
Welcome back. I'm Jeremy Saffron. Here's a quick snapshot of the markets cuz silver is trading around $58 an ounce after setting a brand new fresh record overnight. Now, gold also steady above $4,200. The dollar is a little bit weaker here and ADP jobs just showed us 32,000 job losses in [music] the US private sector. That's the latest sign of a slowing economy. And the CME is still dealing with the fallout of last week's 10-hour GlobeEx outage, [music] which hit right as silver was breaking out. Now, there's a lot happening at once. None of it is normal. Let's get into today's special report. Now, for months, the silver market [music] has been asking, who is behind this move? A central bank, a sovereign [music] wealth fund, a hidden whale. But new CME data reviewed by Kiko News points somewhere else. Now, the biggest force in the market isn't government, it's retail. Micro silver futures built for smaller traders saw volumes rise 238% from last year. So institutions are active, but this acceleration comes from individual traders moving together. And during that spike, CME's GlobeEx platform went offline for nearly 10 hours due to a cooling failure at a major data center. Right as silver hit new record highs, and when the exchange went dark, premiums overseas jumped in minutes. That tells us where the real demand sits. Now, our guest today has been warning for months that the real stress point would appear when physical demand and retail activity hit the exchange at the same time. Phil Baker is of course the former CEO of Heckla Mining, the United States largest silver producer for two decades, oversaw more than 40% of domestic silver output. Of course, still former chairman of the Silver Institute, but you still sit with the the Silver Institute. Thanks for Welcome back, Phil. Thanks for joining us. >> Glad to be here, Jeremy. >> Uh you heard that off the top. I mean, there's lots to get into. Obviously, you know better than I do that there's a lot of eyeballs on silver right now. But let's start with that that number. A 238% jump in in retail futures activity. I mean, it's not small. You've seen every cycle since silver was under $5, Phil. I mean, when retail steps in like this, how do you read it? Is it a structural shift or is this the kind of move that historically marks a top? >> Well, no. Well, we have a long way to go before we're at the top. And and and there is all the things that are causing gold to be of interest to the market applies to silver, particularly here in the United States. >> But you know, for me, the thing that really drives um silver is what's happening in India. And that's that's um that's a very unique situation there. >> Yeah. We're going to get into India. I'm going to tease the audience and we're going to do what we call a cliffhanger and just let them hold on that for a second because you got some insight that that not really anyone does. But before we do, just on on the macro thesis because retail chasing, you know, a breakout is often marked exhaustion as you know. We saw that in 2020 and in other speculative waves. Uh why isn't this the same story? Let's get into the fundamentals a little bit. >> Well, it it really goes back to why people are interested in gold. We have >> everything that's that that is causing gold to be in in demand with the uh the deficits that we have the the um the uncertainty that you have in the market with with tariffs uh just all of the chaos that's happening uh you know around the world. You think about what's happening in the in the Ukraine. You think about what's happening in China. um you know there's all those reasons that gold is of of in demand and as a result silver is falling that that is really the driver of the things that's causing gold to to move is what's causing silver and silver's just doing a catch-up you know the the gold silver ratio is an important thing to look at in this type of market um and I think you'll see silver continue to u reduce that ratio uh as it outperforms gold. >> Okay, that's interesting looking at that ratio again. Back in September, you were on the show. I just watched the tape back this morning and you told me that the physical demand at the Perth Mint was insatiable. I mean, let me talk about last week when the CME went offline, Shanghai and India's premiums widened almost instantly. To you, does that confirm that price discovery moves to the physical market the moment that the futures market blinks? Um, look, the physical market is driving the the the financial market in a way that it hasn't done in in my career. >> Um, it was interesting. I was at the LBMA uh annual meeting. And the quote of the of the meeting was physical is king. Um, and that's that's that's by the LBMA members that are saying that it's we're we're in a very different place than we've been in. um in the last 20 years. >> Yeah. Yeah. Let's move on to the physical side then. I mean this month 8800 December contracts about 44 million ounces are standing for delivery on the CME. I mean that's large. But what what what's different is the buyers. It's not the bullion banks. It's it's commercial users. We still got the solar, the EV, the electronics. Uh Bloomberg reported US industrial buyers are now securing 6 to9 months of inventory ahead of potential critical mineral tariffs. I mean, Phil, is is is this what you're seeing? Are industrial users making sure they're not caught short? >> Yeah. Well, and that's been my advice to them for the past 18 months is don't be short silver and they're finally uh finally putting the silver in place so that that they're not short. >> Interesting. Okay. I mean, I remember you talking about a s industrial demand has more than doubled in 25 years. If companies are now draining exchange inventories instead of relying on just in time supply, does that mean the entire inventory model is starting to break down? >> Well, I don't think the inventory model is breaking down. It's just saying you've got to have the the silver on hand, >> right? um you know because if if you don't you're going to be forced to have your margin squeezed on the the photovalttaics and all the the different uses the industrial uses for silver and it's you know wide array you think about the fact that out of a billion ounces of demand for silver 55% or so is is for industrial um you know they're gonna they're going to try thrifting but They can't thrift fast enough and and so the the only alternative they have is to be long silver. >> Yeah. Interesting. Okay. India that part that we talked about I mean the role in this market has changed dramatically. It it's now the fifth largest economy growing at 8.2% and in October imported four times as much silver as it did a year earlier. Now US bar demand and India's bar demand together now make up a huge share of of you know global physical offtake. You add in ETF allocations on top and traders describe it as you know musical chairs too many claims not enough metal um the LBMA as you just said I mean if it's saying physical is key how much of today's tightness is being driven by India specifically >> um that is the driver that's literally is the driver so if you look at at where the silver went from London it went to Mumbai >> um because of this this demand for silver and it's it's actually quite surprising Amazing. If you if you go back and you look at the the high for silver um back to 2011, it was about 2200 rupees per ounce. Um the 2024 started with silver at about 1,500 rupees per ounce. We're now over 5,000 and they're continuing to to demand silver. If you as you mentioned in October um the demand I think was about 60 million ounces. The previous October it was about 15 million ounces. So despite the fact that silver is at all-time highs in rupee terms the demand has been you know as I described in the Perth Mint insatiable. Um now the the thing that I'm going to continue to watch is where is the demand in in in India? Is the demand continuing? Because that is the underlying driver of overall demand for silver is what's happening in India. >> Wow. So I mean you know you and I talked about this even I think even in Quebec City you were talking about this incredible jewelry coming out of India too. I mean it's been a discussion that you've been talking about for a while. Is it is it just something that that people have missed? >> You know I don't know if they've missed. I think well maybe they have missed you now that you say that. um the focus is on their local market right so the you know the focus is what's happening here in the US what's happening in London when it's a global commodity >> and uh and as as you said there's this musical chairs as to where is the there going to be enough silver for each individual market and what's certainly has happened is that it the the demand has grown and particularly the investment demand has grown in a way that there's not enough available silver to be in inventory in each of those markets. I I I was really struck at the LBMA um at the stress that was felt by the market participants with the with silver and it was you know stress that I had not seen before and and so it's really clear to me that these guys are not going to allow their inventory levels to fall at to the same levels they were before. It is going to be a step up in the amount of inventory that you have in each of these locations >> and as a result of that and we don't know what that level is going to be right it it will be people will make that determination but I can remember early in my career I I was in a position where we could conceivably have gone short been short and and I vowed never to be in that position again and and that's where I think the the market is is now. So it it's that the amount of inventory that they're going to require in each of these markets, I think, is a step function higher than what it's been in the past. I don't think we've actually plumbed the depths of what that might might be. >> Wow. And and and to to to make this clear for our viewers, I mean, India's import pull imports, they they do pull metal directly out of London vaults, right? I mean, those are the same inventory COMX relies on forever. A four-fold increase draining that kind of system. Is this maybe what western traders are underestimating? >> Um yeah, I think I think so. And just just to be clear, the silver can come from anywhere. And in fact, to to resolve things, you saw more silver come out of China um to to so so it will move anywhere, but the fact that it was moving by plane was was really shocking. It shows you the amount of stress that that they uh they were under. >> Yeah. When you say you were watching India and the demand, what specifically are you tracking? I mean, is it kind of imports? Is it it's premiums? Is it rural buying? >> No, it's imports. It's imports. That's, you know, it's it's hard to get clarity beyond that within the within the country, but it's it is imports. You know, the other thing is just to go there and talk to people and see what it is that they're experiencing. >> Now, ETFs draw from the same LBMA pool. So the the biggest two demand drivers India and ETFs are pulling from the same supply. Is that why this squeeze is possibly accelerating? >> Well, the squeeze squeeze occurred. It's been resolved for the moment. >> Yeah. >> But the the point I'm trying to make is um it can happen again. Maybe it's in the comx, maybe it's in Mumbai, maybe it's it's Singapore, maybe it's some someplace else that can can cause the need to move metal from one jurisdiction to another. And we we just don't know if that's going to happen, but just given the stress that the market went through, I I think it's likely. >> Yeah. Uh I want to turn to geop politics just for a quick second because you know Russia did announce earlier this year that it would add silver to its state reserve fund. Something it's never done before and since then silver has obviously outperformed gold. Uh Phil does I mean does does a move like Russia's signal to other BICs nations that silver can kind of play a strategic role? Are you hearing any more talk about this play? So it was it was interesting at the LBMA that came up as to whether other countries would likely do that and and there didn't seem to be a large appetite. On the other hand, you don't know how straightforward they're being about their level of interest. So we're going to have to watch it and see. >> Yeah. Yeah, that's well said. And I mean, at the same time, China's customs data did show increased silver and ore imports from Mexico and and the US added silver to its critical minerals list only last month. I mean, if if if Russia's building reserves in in China, securing supply, is the US behind in recognizing silver as a national security asset? >> I Well, I think so. Um, but it's it's happened, you know, and my hats off to the administration for for doing that. Um, you know, it was uh we pushed for that in I think 2022 and, you know, there was no interest at all. And so um it's it's been a big step forward and to include it in the critical miss because it is critical. I mean ultimately we have to import silver into the United States not just for for investment purposes but for all the industrial uses that we have. >> Yeah. Well said. Uh I want to ask you quickly I mean I do want to talk about the mine output as well because you know it's not really going anywhere. But before we do that I mean traders have been tweeting me all week asking what breaks first. I mean the pressure points I mean one is it you know comx delivery stress is it LBMA inventories draining into India is it lease rates tightening or or is it refiners dealing with with shortages in Asia of those four what do you think's most vulnerable >> well look there they are they all play together frankly there is you can't separate them um you know the the fact that lease rates go went as high as they went was because of the the this the shortage that you had of the physical. So I I yeah it's it's a combination of the of the four. >> Is it closer, you know, to a liquidity problem or a logistics problem? Because I I wonder if policymakers underestimate how fast silver inventories can vanish. >> Um look, it is a it is absolutely an issue of the available silver that is in good delivery form around the world. it is there is a shortage of that that level of inventory that they need to be assured of what uh what the demand is going to going to be >> and on hey Phil on supply I mean we've talked about it before these misconceptions you know because for bear for for years uh the bearish argument was kind of thrifting especially in solar you know but we're seeing these new data I mean Topcon HTT solar cells they they use more silver per watt not less so is large scale thrifting even feasible going forward? >> Yeah. Yeah. Well, look, yes, they will thrift. There's no question about it. They'll continue, but the demand is growing at a faster rate than they than they are they're able to thrift. So, that's not something I'm particularly concerned with over the over the short term. over the course of the next decade. Yeah, it's it's it's something to really keep your eye on, but but over the course of the next 18 months, uh it's not something that's okay would make a material change. >> Let's talk dead timelines then because you've said something that investors often overlook first. You know, from discovery to production is not 5 to 10 years, it's 10 to 20 years in today's regulatory environment. Even brownfield expansion could take 5 to 10 years as you pointed out. I mean, peak silver was 2016. I think that's what you told me last time at 900 million ounces. And and you've said we'll not reach that level again this decade. Realistically, not until 2035. I mean, last year the top five mines globally produced 41 to 17 million ounces. The fifth largest mine is just 2% of the world's supply. I mean, I with deficits running for five straight years. I mean, how how does any of this get balanced? Just talk to me about this. Well, it it it gets balanced only by silver that sits in the hands of individuals or or funds. It's it you know there is no other source unlike unlike gold where the central banks can reverse themselves and sell positions and you you've actually have seen that over the course of the last last year that some central banks not not most but some have sold. You don't have that for silver. The only way silver comes back into the market that fills that inventory is it's coming from, you know, large um institutions, coming from family offices, coming from individuals. Um and it takes a lot of those to get mobilized in in order to to provide the amount of silver that's needed. And remember, there's been a deficit now for five years. um you know the deficit this year should should be 100 to 200 million ounces and that's on top of deficits that have exceeded that over the last four years. >> Are we you know you're talking about the the physical world and and you and I have talked about recycling before. I mean are we heading kind of toward a world where recycling can't backs stop production at all? I mean every deficit has to be absorbed through price >> and that's always been true. remember that that recycling only represents about 150 to 200 million ounces regardless of what happens to the price. >> Um it's there just is not the infrastructure in place in order to to generate the uh the silver. You know, back 25 years ago, where was recycling from? It was from photographic, you know, from photography, >> right? >> You no longer have that. So where is it coming from now? It's from from recycling electronics. It's from jewelry. It's from, you know, coins. Um, just silver rounds. That's that's where that recycling is coming from. And there's just a limit on the capacity to recycle. So, so the growth has to come from silver that's already in existence, that's sitting in in people's hands today. And it has to come from the mines, but the mines are not going to deliver that growth for a long time to come. We're going to always be below this 900 million ounces of silver from the mines, at least for the next decade. >> So, so I mean, take us down a little bit further down that supply path. If if mine output can't respond quickly enough and secondary metals won't come back, I mean, what does the next decade actually look like on the ground? Are we talking about stalled projects or half-built operations or or producers simply high grading because they can't justify long lead development in this environment? >> Well, no. It's it it is a number one it's a function that we've had low silver prices for a long time. And as a result of that, you've not had the expiration that's occurred, right? >> To the extent you have had the expiration that's occurred, a silver mine just fundamentally is a small producer. There are very few large silver mines as you as you mentioned the fifth largest mine which is um St. Crisal's mine. So the company that I represent on the silver institute produces this past year 2024 17 million ounces. Um you know that is you know that that's 2% of the total demand for or the total production of silver in the world. Most mines are somewhere between three to five million ounces. That would be a good size silver silver mine. You there just aren't enough silver mines that are going to go into production to make a to make a difference. Um so so mine supply is not something that the market needs to worry about. >> Yeah. Interesting. >> As far as as far as filling the gap or filling that >> deficit and and I mean you've pointed to regions like Yukon, right? simple geology, long known deposits, but but years of regulatory delays even for brownfield work. So, is permitting the real bottleneck here? >> Yeah, permitting has definitely been the big bottleneck. Um, you know, the the the geologists can find the deposits. Um, the the developers can develop them, the operators can operate the the mines. The problem is trying to be in a in an environment that allows you to move projects forward. Um, you know, even the infrastructure is not that big of an issue. If you if you go back and you think about, you know, mines that have been in place, you know, going back a hundred years ago, they had no infrastructure to to rely upon. Um, the the the mines the miners can overcome that. What they can't overcome is the regulatory stall that you have. And, you know, it happens around the world. Some places worse than others. Um and and I'm happy to say in the United States I think it's improving dramatically and will continue to improve uh as this recognition of the need for the critical minerals is uh is is is more broadly based. >> Let's talk about price for a second. Everyone's frothing at the price and we've seen this violent move but you brought up this you know the gold silver ratio. It's tightened from 88 in July to about 74 today. uh Gabali fund sees $65 silver as that ratio moves towards its long-term average. I mean, is is this just silver catching up to gold or is there, you know, still a huge case as you've been mentioning here for higher levels and and more specifically, I mean, what could we look at going into 2026? >> Well, it is silver catching up to gold. I think it's fundamentally supported by that. Um, how far can it go? Um, yeah. Look, look, if you go back to 2011, uh, I'm going to do this from memory, but I want to say it was below 40 for a period of time. So, could you see something like that? The gold silver ratio, something like that. Yeah, that definitely you could see it below 50 or 60. Um, and and you know, the impact on the silver prices uh is really dramatic. >> Yeah. Yeah, you're not kidding. I mean, back in September, you said patience was the biggest lesson that you learned when silver was at $4, Phil. I mean, for somebody looking at nearly 58, $59 silver today, what's the one indicator that you kind of watch to confirm that the the trends intact? >> Yeah. I I continue to look to to India. >> Yeah. >> You know, that is that is the fundamental driver of demand is is Indian demand. uh and and I you know look at the now at the moment I'm looking at the levels of inventory uh available to the exchanges. >> If you were CEO I mean I have to ask this because obviously you ran heckler for nearly 20 years. I mean uh I know you're advising companies now but it's it's a hypothetical at these prices. What would you be doing differently? I mean where would you be deploying capital? What would you accelerate? What would you avoid completely? Um look I would I would absolutely accelerate the expiration activities. Um th this de as I said this deficit is going to continue I think for easily another decade. Um you know you might you might have periods of time where the demand the investment demand um reverses and and investors are providing silver rather than demanding silver. But but generally speaking, the outlook for silver looks so good that I would be really focused on exploring in order to expand the reserve base that I have and then putting them into production while you have a regulatory environment that's supportive of that. >> Yeah. Yeah. I mean, at least you do have that on your side in the US with this new critical mineral list. I mean, you've been clear that exploration has to happen, but but give us the reality. I mean, what kind of exploration actually moves the the needle now? we talking, you know, near mine drilling to extend existing operations or is it kind of true green field exploration? >> It's going to be both, but but look, the the near mine allows you to use existing infrastructure, allows you to build on what you already have and that's the fastest way to to get to production, fastest way to deliver value to shareholders. Um but the the big value driver, you know, the step function is exploration in, you know, that's green fields. >> Yeah. Yeah. Is I mean, it feels like there's few remaining districts that you think might still have genuine discovery potential. Anything on that side? >> No, I don't know if I'd say there's few. And you know, and clearly as the price goes up, the economics of of deposits increased dramatically. Um, you know, there's there's going to be a lot of of old properties that are going to be re-examined and and that's going to be the fastest way for discovery and probably the fastest way to production. >> Yeah. I mean, for mid-tier producers, I mean, what do you think's the biggest mistake they could make right now, Phil? Um well I think the look I think the biggest mistake is not aggressively advancing the the projects being >> um you know you you need to be thoughtful goes without saying but this is not the time to be bashful about um doing the exploration and advancing uh advancing the projects you've got I I particularly in the United States and I think other the rest of the world is going to follow at least portions of the world are going to follow the United States in terms of the regulatory environment and they're going to be encouraging investment encouraging miners to advance their projects. >> Yeah. I mean, Phil, you've said before that copper and silver obviously tied at the hip because so much silver is produced as a byproduct. If if copper produ projects slow down, as we've kind of seen, whether from capex cops or politics or permitting, how big is the knock- on effect for silver supply? Are we looking at years of underproductive, you know, underproduction simply because the copper pipeline isn't being built out fast enough? >> Well, look, look, um, silver is a is a byproduct of not only copper, but gold, >> lead, and zinc. >> Um, there's very few silver only mines. There's there's really it's it's they're almost non-existent. Silver only. >> Um, so it's a it is a byproduct of each of those. You know, you think about it. Um, even well go back to the size of the mines. You're not going to see a silver mine or a gold mine or a copper or lead zinc mine that's going to produce much more than four or five million ounces of silver. So it it's it's just a really limited opportunity to see dramatic growth in uh in the silver production from the mines. >> Have you been surprised watching some of these numbers on the equity side? I mean, we don't need to talk specific stocks, but uh some silver stocks have moved quite a bit. Some are somewhat volatile. Still quite a runway to go, you think? >> Yeah. Look, there's a long way way to go because you're in this long-term deficit for for silver. The thing that I think has been most surprising is how long it's taken for the companies to um to be revalued given the fundamentals underlying silver and and it's been surprising at how slow performed relative to to gold, right? You know, you you would have thought um that the silver price would be where it is um a year or so ago. So, so that's that's the more surprising thing. >> Yeah. I mean, what do you say it's surprising for how long it's taking for mining companies to be rebellled? Why what do you think's holding them back? Is it is it past poor performance generalists kind of ignoring this space or or the market just not believing that the deficits are real yet? >> So, so it's interesting. Um, silver's known as the devil's metal, right? >> Yeah. and and and you know part of that is people have had you know bad experiences with with silver because you had this big runup uh 79 80 you had the runup in 2011 you didn't see any followth through with that so so there's skepticism and there's a lot of silver around you know there's probably about six billion ounces of silver uh in the world that that uh is floating around in one form or other the thing that's changed is the you have this underlying industrial demand for for silver that you never had before. If you go back to um 198586 um the the demand for silver was about 600 [snorts] million ounces around the world. We're now at about 1.2 billion ounces. So it's doubled. And in that time, photographic demand represented about a third of all the demand for silver. And now it's about 8 8%. So it has so that has completely fallen away. And yet there's so much more demand. And where's that demand come from? It's come from the industrial side of things. And and then you have um you know just uh this this silver that's that's available. you have now a country like India that has the wealth of that country has just exploded. Mhm. >> Um I you know I went to China in 1982 and I didn't it was a it was a backward country. Everybody was on bicycles and you see the impact that China's growth has had on the world. That's what's happening with India and silver is one of the beneficiaries of that. >> Yeah. Well said. All right. with everything you laid out here. I mean, India's sustained pull on on physical, you know, these tight inventories in London. We got this permitting system that kind of can't respond and, you know, this this supply that's effectively capped for decades. What's your picture for 2026? I mean, what does a silver landscape actually look like from a year from now? Are we still dealing with, you know, this chronic tightness, this higher premiums, and is there just real friction in getting metal from point A to point B? >> It's hard to say. you know, it it becomes a question of how willing are investors um to putting their their silver into the market and filling the inventories and at what price um do those market participants want to pay to be assured that they've got the silver that they that they need. Um, so it's hard to say that it's just hard to envision that we're going to see, you know, lower silver prices for any significant period of time. You know, you'll have the volatility and and silver, but it's as long as the fundamentals that drive gold continue where investors are going to want to own own silver. Uh, you'll see that and you'll see the demand from India continue. Those two things will cause the silver price to say if these levels are higher. >> India India part of this story we're going to keep watching. I mean as a journalist I got to ask what's the risk case if if 2026 doesn't play out with the way that you expect say if demand cools or if tariffs fade away or if financing kind of dries up. I mean what what part of the outlook would be most vulnerable uh there? >> Um look I think again it goes back to India. That's if you if you saw saw a slowdown in the economy in India that would be the the you know one of the that would that would be the underlying driver you know the marginal buyer is clearly outside of India that's and and and you know all of those factors that cause that marginal buyer to be a buyer rather than a seller of silver is is going to be the the the where the marginal but the underlying price and are seeing the price of silver above $4550 is really coming out of India. >> Yeah. And I see, you know, I see a somewhat I won't say I see somewhat of a smirk here, Phil, but I mean, think of 2025. I mean, it's a good time to be a silver miner. What an interesting, fascinating market this year, huh? AB: >> Absolutely. It's uh it's been a long time coming, but it's been fun all along the way. um you know you you you it's it's a very very interesting market that has changed so dramatically over the course of the last 20 years um but uh it's it's been great to be involved in that and you know the outlook is looks even better. >> Yeah, well said. All right, Phil, thank you. Phil Baker joining us now, adviser of San Crystal Ball Mining. Uh so many things he's a veteran in the space. Uh congratulations on the year. I'm looking forward to to what happens next year. We're going to have you back on and and keep an eye on that India. What a fascinating topic. >> Okay. Thanks, Jeremy. >> Thanks, Phil. Appreciate that. And for our viewers, here's the bottom line here. Retail activity obviously has surged and as you heard there, India's physical demand has jumped four-fold. US bar demand remains strong. ETFs are draining the same inventories that India is pulling from. Now, we are going to keep ahead of all of this. It's a combination that the market hasn't faced in years. [music] I'm Jeremy Savin. For all of us here at KCO News, thanks for watching. Be sure to hit subscribe. We'll see you next time. [music] Heat. [music] Heat.
‘It Went to Mumbai’: The Real Reason London Silver Vaults Are Draining | Phil Baker
Summary
Transcript
Welcome back. I'm Jeremy Saffron. Here's a quick snapshot of the markets cuz silver is trading around $58 an ounce after setting a brand new fresh record overnight. Now, gold also steady above $4,200. The dollar is a little bit weaker here and ADP jobs just showed us 32,000 job losses in [music] the US private sector. That's the latest sign of a slowing economy. And the CME is still dealing with the fallout of last week's 10-hour GlobeEx outage, [music] which hit right as silver was breaking out. Now, there's a lot happening at once. None of it is normal. Let's get into today's special report. Now, for months, the silver market [music] has been asking, who is behind this move? A central bank, a sovereign [music] wealth fund, a hidden whale. But new CME data reviewed by Kiko News points somewhere else. Now, the biggest force in the market isn't government, it's retail. Micro silver futures built for smaller traders saw volumes rise 238% from last year. So institutions are active, but this acceleration comes from individual traders moving together. And during that spike, CME's GlobeEx platform went offline for nearly 10 hours due to a cooling failure at a major data center. Right as silver hit new record highs, and when the exchange went dark, premiums overseas jumped in minutes. That tells us where the real demand sits. Now, our guest today has been warning for months that the real stress point would appear when physical demand and retail activity hit the exchange at the same time. Phil Baker is of course the former CEO of Heckla Mining, the United States largest silver producer for two decades, oversaw more than 40% of domestic silver output. Of course, still former chairman of the Silver Institute, but you still sit with the the Silver Institute. Thanks for Welcome back, Phil. Thanks for joining us. >> Glad to be here, Jeremy. >> Uh you heard that off the top. I mean, there's lots to get into. Obviously, you know better than I do that there's a lot of eyeballs on silver right now. But let's start with that that number. A 238% jump in in retail futures activity. I mean, it's not small. You've seen every cycle since silver was under $5, Phil. I mean, when retail steps in like this, how do you read it? Is it a structural shift or is this the kind of move that historically marks a top? >> Well, no. Well, we have a long way to go before we're at the top. And and and there is all the things that are causing gold to be of interest to the market applies to silver, particularly here in the United States. >> But you know, for me, the thing that really drives um silver is what's happening in India. And that's that's um that's a very unique situation there. >> Yeah. We're going to get into India. I'm going to tease the audience and we're going to do what we call a cliffhanger and just let them hold on that for a second because you got some insight that that not really anyone does. But before we do, just on on the macro thesis because retail chasing, you know, a breakout is often marked exhaustion as you know. We saw that in 2020 and in other speculative waves. Uh why isn't this the same story? Let's get into the fundamentals a little bit. >> Well, it it really goes back to why people are interested in gold. We have >> everything that's that that is causing gold to be in in demand with the uh the deficits that we have the the um the uncertainty that you have in the market with with tariffs uh just all of the chaos that's happening uh you know around the world. You think about what's happening in the in the Ukraine. You think about what's happening in China. um you know there's all those reasons that gold is of of in demand and as a result silver is falling that that is really the driver of the things that's causing gold to to move is what's causing silver and silver's just doing a catch-up you know the the gold silver ratio is an important thing to look at in this type of market um and I think you'll see silver continue to u reduce that ratio uh as it outperforms gold. >> Okay, that's interesting looking at that ratio again. Back in September, you were on the show. I just watched the tape back this morning and you told me that the physical demand at the Perth Mint was insatiable. I mean, let me talk about last week when the CME went offline, Shanghai and India's premiums widened almost instantly. To you, does that confirm that price discovery moves to the physical market the moment that the futures market blinks? Um, look, the physical market is driving the the the financial market in a way that it hasn't done in in my career. >> Um, it was interesting. I was at the LBMA uh annual meeting. And the quote of the of the meeting was physical is king. Um, and that's that's that's by the LBMA members that are saying that it's we're we're in a very different place than we've been in. um in the last 20 years. >> Yeah. Yeah. Let's move on to the physical side then. I mean this month 8800 December contracts about 44 million ounces are standing for delivery on the CME. I mean that's large. But what what what's different is the buyers. It's not the bullion banks. It's it's commercial users. We still got the solar, the EV, the electronics. Uh Bloomberg reported US industrial buyers are now securing 6 to9 months of inventory ahead of potential critical mineral tariffs. I mean, Phil, is is is this what you're seeing? Are industrial users making sure they're not caught short? >> Yeah. Well, and that's been my advice to them for the past 18 months is don't be short silver and they're finally uh finally putting the silver in place so that that they're not short. >> Interesting. Okay. I mean, I remember you talking about a s industrial demand has more than doubled in 25 years. If companies are now draining exchange inventories instead of relying on just in time supply, does that mean the entire inventory model is starting to break down? >> Well, I don't think the inventory model is breaking down. It's just saying you've got to have the the silver on hand, >> right? um you know because if if you don't you're going to be forced to have your margin squeezed on the the photovalttaics and all the the different uses the industrial uses for silver and it's you know wide array you think about the fact that out of a billion ounces of demand for silver 55% or so is is for industrial um you know they're gonna they're going to try thrifting but They can't thrift fast enough and and so the the only alternative they have is to be long silver. >> Yeah. Interesting. Okay. India that part that we talked about I mean the role in this market has changed dramatically. It it's now the fifth largest economy growing at 8.2% and in October imported four times as much silver as it did a year earlier. Now US bar demand and India's bar demand together now make up a huge share of of you know global physical offtake. You add in ETF allocations on top and traders describe it as you know musical chairs too many claims not enough metal um the LBMA as you just said I mean if it's saying physical is key how much of today's tightness is being driven by India specifically >> um that is the driver that's literally is the driver so if you look at at where the silver went from London it went to Mumbai >> um because of this this demand for silver and it's it's actually quite surprising Amazing. If you if you go back and you look at the the high for silver um back to 2011, it was about 2200 rupees per ounce. Um the 2024 started with silver at about 1,500 rupees per ounce. We're now over 5,000 and they're continuing to to demand silver. If you as you mentioned in October um the demand I think was about 60 million ounces. The previous October it was about 15 million ounces. So despite the fact that silver is at all-time highs in rupee terms the demand has been you know as I described in the Perth Mint insatiable. Um now the the thing that I'm going to continue to watch is where is the demand in in in India? Is the demand continuing? Because that is the underlying driver of overall demand for silver is what's happening in India. >> Wow. So I mean you know you and I talked about this even I think even in Quebec City you were talking about this incredible jewelry coming out of India too. I mean it's been a discussion that you've been talking about for a while. Is it is it just something that that people have missed? >> You know I don't know if they've missed. I think well maybe they have missed you now that you say that. um the focus is on their local market right so the you know the focus is what's happening here in the US what's happening in London when it's a global commodity >> and uh and as as you said there's this musical chairs as to where is the there going to be enough silver for each individual market and what's certainly has happened is that it the the demand has grown and particularly the investment demand has grown in a way that there's not enough available silver to be in inventory in each of those markets. I I I was really struck at the LBMA um at the stress that was felt by the market participants with the with silver and it was you know stress that I had not seen before and and so it's really clear to me that these guys are not going to allow their inventory levels to fall at to the same levels they were before. It is going to be a step up in the amount of inventory that you have in each of these locations >> and as a result of that and we don't know what that level is going to be right it it will be people will make that determination but I can remember early in my career I I was in a position where we could conceivably have gone short been short and and I vowed never to be in that position again and and that's where I think the the market is is now. So it it's that the amount of inventory that they're going to require in each of these markets, I think, is a step function higher than what it's been in the past. I don't think we've actually plumbed the depths of what that might might be. >> Wow. And and and to to to make this clear for our viewers, I mean, India's import pull imports, they they do pull metal directly out of London vaults, right? I mean, those are the same inventory COMX relies on forever. A four-fold increase draining that kind of system. Is this maybe what western traders are underestimating? >> Um yeah, I think I think so. And just just to be clear, the silver can come from anywhere. And in fact, to to resolve things, you saw more silver come out of China um to to so so it will move anywhere, but the fact that it was moving by plane was was really shocking. It shows you the amount of stress that that they uh they were under. >> Yeah. When you say you were watching India and the demand, what specifically are you tracking? I mean, is it kind of imports? Is it it's premiums? Is it rural buying? >> No, it's imports. It's imports. That's, you know, it's it's hard to get clarity beyond that within the within the country, but it's it is imports. You know, the other thing is just to go there and talk to people and see what it is that they're experiencing. >> Now, ETFs draw from the same LBMA pool. So the the biggest two demand drivers India and ETFs are pulling from the same supply. Is that why this squeeze is possibly accelerating? >> Well, the squeeze squeeze occurred. It's been resolved for the moment. >> Yeah. >> But the the point I'm trying to make is um it can happen again. Maybe it's in the comx, maybe it's in Mumbai, maybe it's it's Singapore, maybe it's some someplace else that can can cause the need to move metal from one jurisdiction to another. And we we just don't know if that's going to happen, but just given the stress that the market went through, I I think it's likely. >> Yeah. Uh I want to turn to geop politics just for a quick second because you know Russia did announce earlier this year that it would add silver to its state reserve fund. Something it's never done before and since then silver has obviously outperformed gold. Uh Phil does I mean does does a move like Russia's signal to other BICs nations that silver can kind of play a strategic role? Are you hearing any more talk about this play? So it was it was interesting at the LBMA that came up as to whether other countries would likely do that and and there didn't seem to be a large appetite. On the other hand, you don't know how straightforward they're being about their level of interest. So we're going to have to watch it and see. >> Yeah. Yeah, that's well said. And I mean, at the same time, China's customs data did show increased silver and ore imports from Mexico and and the US added silver to its critical minerals list only last month. I mean, if if if Russia's building reserves in in China, securing supply, is the US behind in recognizing silver as a national security asset? >> I Well, I think so. Um, but it's it's happened, you know, and my hats off to the administration for for doing that. Um, you know, it was uh we pushed for that in I think 2022 and, you know, there was no interest at all. And so um it's it's been a big step forward and to include it in the critical miss because it is critical. I mean ultimately we have to import silver into the United States not just for for investment purposes but for all the industrial uses that we have. >> Yeah. Well said. Uh I want to ask you quickly I mean I do want to talk about the mine output as well because you know it's not really going anywhere. But before we do that I mean traders have been tweeting me all week asking what breaks first. I mean the pressure points I mean one is it you know comx delivery stress is it LBMA inventories draining into India is it lease rates tightening or or is it refiners dealing with with shortages in Asia of those four what do you think's most vulnerable >> well look there they are they all play together frankly there is you can't separate them um you know the the fact that lease rates go went as high as they went was because of the the this the shortage that you had of the physical. So I I yeah it's it's a combination of the of the four. >> Is it closer, you know, to a liquidity problem or a logistics problem? Because I I wonder if policymakers underestimate how fast silver inventories can vanish. >> Um look, it is a it is absolutely an issue of the available silver that is in good delivery form around the world. it is there is a shortage of that that level of inventory that they need to be assured of what uh what the demand is going to going to be >> and on hey Phil on supply I mean we've talked about it before these misconceptions you know because for bear for for years uh the bearish argument was kind of thrifting especially in solar you know but we're seeing these new data I mean Topcon HTT solar cells they they use more silver per watt not less so is large scale thrifting even feasible going forward? >> Yeah. Yeah. Well, look, yes, they will thrift. There's no question about it. They'll continue, but the demand is growing at a faster rate than they than they are they're able to thrift. So, that's not something I'm particularly concerned with over the over the short term. over the course of the next decade. Yeah, it's it's it's something to really keep your eye on, but but over the course of the next 18 months, uh it's not something that's okay would make a material change. >> Let's talk dead timelines then because you've said something that investors often overlook first. You know, from discovery to production is not 5 to 10 years, it's 10 to 20 years in today's regulatory environment. Even brownfield expansion could take 5 to 10 years as you pointed out. I mean, peak silver was 2016. I think that's what you told me last time at 900 million ounces. And and you've said we'll not reach that level again this decade. Realistically, not until 2035. I mean, last year the top five mines globally produced 41 to 17 million ounces. The fifth largest mine is just 2% of the world's supply. I mean, I with deficits running for five straight years. I mean, how how does any of this get balanced? Just talk to me about this. Well, it it it gets balanced only by silver that sits in the hands of individuals or or funds. It's it you know there is no other source unlike unlike gold where the central banks can reverse themselves and sell positions and you you've actually have seen that over the course of the last last year that some central banks not not most but some have sold. You don't have that for silver. The only way silver comes back into the market that fills that inventory is it's coming from, you know, large um institutions, coming from family offices, coming from individuals. Um and it takes a lot of those to get mobilized in in order to to provide the amount of silver that's needed. And remember, there's been a deficit now for five years. um you know the deficit this year should should be 100 to 200 million ounces and that's on top of deficits that have exceeded that over the last four years. >> Are we you know you're talking about the the physical world and and you and I have talked about recycling before. I mean are we heading kind of toward a world where recycling can't backs stop production at all? I mean every deficit has to be absorbed through price >> and that's always been true. remember that that recycling only represents about 150 to 200 million ounces regardless of what happens to the price. >> Um it's there just is not the infrastructure in place in order to to generate the uh the silver. You know, back 25 years ago, where was recycling from? It was from photographic, you know, from photography, >> right? >> You no longer have that. So where is it coming from now? It's from from recycling electronics. It's from jewelry. It's from, you know, coins. Um, just silver rounds. That's that's where that recycling is coming from. And there's just a limit on the capacity to recycle. So, so the growth has to come from silver that's already in existence, that's sitting in in people's hands today. And it has to come from the mines, but the mines are not going to deliver that growth for a long time to come. We're going to always be below this 900 million ounces of silver from the mines, at least for the next decade. >> So, so I mean, take us down a little bit further down that supply path. If if mine output can't respond quickly enough and secondary metals won't come back, I mean, what does the next decade actually look like on the ground? Are we talking about stalled projects or half-built operations or or producers simply high grading because they can't justify long lead development in this environment? >> Well, no. It's it it is a number one it's a function that we've had low silver prices for a long time. And as a result of that, you've not had the expiration that's occurred, right? >> To the extent you have had the expiration that's occurred, a silver mine just fundamentally is a small producer. There are very few large silver mines as you as you mentioned the fifth largest mine which is um St. Crisal's mine. So the company that I represent on the silver institute produces this past year 2024 17 million ounces. Um you know that is you know that that's 2% of the total demand for or the total production of silver in the world. Most mines are somewhere between three to five million ounces. That would be a good size silver silver mine. You there just aren't enough silver mines that are going to go into production to make a to make a difference. Um so so mine supply is not something that the market needs to worry about. >> Yeah. Interesting. >> As far as as far as filling the gap or filling that >> deficit and and I mean you've pointed to regions like Yukon, right? simple geology, long known deposits, but but years of regulatory delays even for brownfield work. So, is permitting the real bottleneck here? >> Yeah, permitting has definitely been the big bottleneck. Um, you know, the the the geologists can find the deposits. Um, the the developers can develop them, the operators can operate the the mines. The problem is trying to be in a in an environment that allows you to move projects forward. Um, you know, even the infrastructure is not that big of an issue. If you if you go back and you think about, you know, mines that have been in place, you know, going back a hundred years ago, they had no infrastructure to to rely upon. Um, the the the mines the miners can overcome that. What they can't overcome is the regulatory stall that you have. And, you know, it happens around the world. Some places worse than others. Um and and I'm happy to say in the United States I think it's improving dramatically and will continue to improve uh as this recognition of the need for the critical minerals is uh is is is more broadly based. >> Let's talk about price for a second. Everyone's frothing at the price and we've seen this violent move but you brought up this you know the gold silver ratio. It's tightened from 88 in July to about 74 today. uh Gabali fund sees $65 silver as that ratio moves towards its long-term average. I mean, is is this just silver catching up to gold or is there, you know, still a huge case as you've been mentioning here for higher levels and and more specifically, I mean, what could we look at going into 2026? >> Well, it is silver catching up to gold. I think it's fundamentally supported by that. Um, how far can it go? Um, yeah. Look, look, if you go back to 2011, uh, I'm going to do this from memory, but I want to say it was below 40 for a period of time. So, could you see something like that? The gold silver ratio, something like that. Yeah, that definitely you could see it below 50 or 60. Um, and and you know, the impact on the silver prices uh is really dramatic. >> Yeah. Yeah, you're not kidding. I mean, back in September, you said patience was the biggest lesson that you learned when silver was at $4, Phil. I mean, for somebody looking at nearly 58, $59 silver today, what's the one indicator that you kind of watch to confirm that the the trends intact? >> Yeah. I I continue to look to to India. >> Yeah. >> You know, that is that is the fundamental driver of demand is is Indian demand. uh and and I you know look at the now at the moment I'm looking at the levels of inventory uh available to the exchanges. >> If you were CEO I mean I have to ask this because obviously you ran heckler for nearly 20 years. I mean uh I know you're advising companies now but it's it's a hypothetical at these prices. What would you be doing differently? I mean where would you be deploying capital? What would you accelerate? What would you avoid completely? Um look I would I would absolutely accelerate the expiration activities. Um th this de as I said this deficit is going to continue I think for easily another decade. Um you know you might you might have periods of time where the demand the investment demand um reverses and and investors are providing silver rather than demanding silver. But but generally speaking, the outlook for silver looks so good that I would be really focused on exploring in order to expand the reserve base that I have and then putting them into production while you have a regulatory environment that's supportive of that. >> Yeah. Yeah. I mean, at least you do have that on your side in the US with this new critical mineral list. I mean, you've been clear that exploration has to happen, but but give us the reality. I mean, what kind of exploration actually moves the the needle now? we talking, you know, near mine drilling to extend existing operations or is it kind of true green field exploration? >> It's going to be both, but but look, the the near mine allows you to use existing infrastructure, allows you to build on what you already have and that's the fastest way to to get to production, fastest way to deliver value to shareholders. Um but the the big value driver, you know, the step function is exploration in, you know, that's green fields. >> Yeah. Yeah. Is I mean, it feels like there's few remaining districts that you think might still have genuine discovery potential. Anything on that side? >> No, I don't know if I'd say there's few. And you know, and clearly as the price goes up, the economics of of deposits increased dramatically. Um, you know, there's there's going to be a lot of of old properties that are going to be re-examined and and that's going to be the fastest way for discovery and probably the fastest way to production. >> Yeah. I mean, for mid-tier producers, I mean, what do you think's the biggest mistake they could make right now, Phil? Um well I think the look I think the biggest mistake is not aggressively advancing the the projects being >> um you know you you need to be thoughtful goes without saying but this is not the time to be bashful about um doing the exploration and advancing uh advancing the projects you've got I I particularly in the United States and I think other the rest of the world is going to follow at least portions of the world are going to follow the United States in terms of the regulatory environment and they're going to be encouraging investment encouraging miners to advance their projects. >> Yeah. I mean, Phil, you've said before that copper and silver obviously tied at the hip because so much silver is produced as a byproduct. If if copper produ projects slow down, as we've kind of seen, whether from capex cops or politics or permitting, how big is the knock- on effect for silver supply? Are we looking at years of underproductive, you know, underproduction simply because the copper pipeline isn't being built out fast enough? >> Well, look, look, um, silver is a is a byproduct of not only copper, but gold, >> lead, and zinc. >> Um, there's very few silver only mines. There's there's really it's it's they're almost non-existent. Silver only. >> Um, so it's a it is a byproduct of each of those. You know, you think about it. Um, even well go back to the size of the mines. You're not going to see a silver mine or a gold mine or a copper or lead zinc mine that's going to produce much more than four or five million ounces of silver. So it it's it's just a really limited opportunity to see dramatic growth in uh in the silver production from the mines. >> Have you been surprised watching some of these numbers on the equity side? I mean, we don't need to talk specific stocks, but uh some silver stocks have moved quite a bit. Some are somewhat volatile. Still quite a runway to go, you think? >> Yeah. Look, there's a long way way to go because you're in this long-term deficit for for silver. The thing that I think has been most surprising is how long it's taken for the companies to um to be revalued given the fundamentals underlying silver and and it's been surprising at how slow performed relative to to gold, right? You know, you you would have thought um that the silver price would be where it is um a year or so ago. So, so that's that's the more surprising thing. >> Yeah. I mean, what do you say it's surprising for how long it's taking for mining companies to be rebellled? Why what do you think's holding them back? Is it is it past poor performance generalists kind of ignoring this space or or the market just not believing that the deficits are real yet? >> So, so it's interesting. Um, silver's known as the devil's metal, right? >> Yeah. and and and you know part of that is people have had you know bad experiences with with silver because you had this big runup uh 79 80 you had the runup in 2011 you didn't see any followth through with that so so there's skepticism and there's a lot of silver around you know there's probably about six billion ounces of silver uh in the world that that uh is floating around in one form or other the thing that's changed is the you have this underlying industrial demand for for silver that you never had before. If you go back to um 198586 um the the demand for silver was about 600 [snorts] million ounces around the world. We're now at about 1.2 billion ounces. So it's doubled. And in that time, photographic demand represented about a third of all the demand for silver. And now it's about 8 8%. So it has so that has completely fallen away. And yet there's so much more demand. And where's that demand come from? It's come from the industrial side of things. And and then you have um you know just uh this this silver that's that's available. you have now a country like India that has the wealth of that country has just exploded. Mhm. >> Um I you know I went to China in 1982 and I didn't it was a it was a backward country. Everybody was on bicycles and you see the impact that China's growth has had on the world. That's what's happening with India and silver is one of the beneficiaries of that. >> Yeah. Well said. All right. with everything you laid out here. I mean, India's sustained pull on on physical, you know, these tight inventories in London. We got this permitting system that kind of can't respond and, you know, this this supply that's effectively capped for decades. What's your picture for 2026? I mean, what does a silver landscape actually look like from a year from now? Are we still dealing with, you know, this chronic tightness, this higher premiums, and is there just real friction in getting metal from point A to point B? >> It's hard to say. you know, it it becomes a question of how willing are investors um to putting their their silver into the market and filling the inventories and at what price um do those market participants want to pay to be assured that they've got the silver that they that they need. Um, so it's hard to say that it's just hard to envision that we're going to see, you know, lower silver prices for any significant period of time. You know, you'll have the volatility and and silver, but it's as long as the fundamentals that drive gold continue where investors are going to want to own own silver. Uh, you'll see that and you'll see the demand from India continue. Those two things will cause the silver price to say if these levels are higher. >> India India part of this story we're going to keep watching. I mean as a journalist I got to ask what's the risk case if if 2026 doesn't play out with the way that you expect say if demand cools or if tariffs fade away or if financing kind of dries up. I mean what what part of the outlook would be most vulnerable uh there? >> Um look I think again it goes back to India. That's if you if you saw saw a slowdown in the economy in India that would be the the you know one of the that would that would be the underlying driver you know the marginal buyer is clearly outside of India that's and and and you know all of those factors that cause that marginal buyer to be a buyer rather than a seller of silver is is going to be the the the where the marginal but the underlying price and are seeing the price of silver above $4550 is really coming out of India. >> Yeah. And I see, you know, I see a somewhat I won't say I see somewhat of a smirk here, Phil, but I mean, think of 2025. I mean, it's a good time to be a silver miner. What an interesting, fascinating market this year, huh? AB: >> Absolutely. It's uh it's been a long time coming, but it's been fun all along the way. um you know you you you it's it's a very very interesting market that has changed so dramatically over the course of the last 20 years um but uh it's it's been great to be involved in that and you know the outlook is looks even better. >> Yeah, well said. All right, Phil, thank you. Phil Baker joining us now, adviser of San Crystal Ball Mining. Uh so many things he's a veteran in the space. Uh congratulations on the year. I'm looking forward to to what happens next year. We're going to have you back on and and keep an eye on that India. What a fascinating topic. >> Okay. Thanks, Jeremy. >> Thanks, Phil. Appreciate that. And for our viewers, here's the bottom line here. Retail activity obviously has surged and as you heard there, India's physical demand has jumped four-fold. US bar demand remains strong. ETFs are draining the same inventories that India is pulling from. Now, we are going to keep ahead of all of this. It's a combination that the market hasn't faced in years. [music] I'm Jeremy Savin. For all of us here at KCO News, thanks for watching. Be sure to hit subscribe. We'll see you next time. [music] Heat. [music] Heat.