Silver prices closed last week at multi-year highs, coming within reach of their 2011 peak of $49.95 per ounce. Investors piled into precious metals amid shrinking inventories and growing signs of a market squeeze.

Front-month COMEX silver settled around $47.60 an ounce, up 2.9% for the week and roughly 63.8% year-to-date, outpacing even gold's stellar run. The evidence is now clear: the commodity market has entered its second phase, when silver tends to lead. The sole question is: How high?

TD Securities' commodity strategist Daniel Ghali described the current environment as "the #silversqueeze you can buy into," adding that "free-floating stockpiles in London Bullion Market Association vaults have reached a critically low level."

Ghali recently told Bloomberg that, at current rates of ETF inflows and industrial demand, "there are probably less than four months" of freely available silver left in London before inventories run dry.

In a recent note, Ghali and his team said lease rates for silver--the cost of borrowing the metal--had surged to "extreme" levels, signaling scarcity. London's silver inventories have fallen to roughly 135 million ounces, about half of the market's daily trading volume.

Heavy Indian imports, which reportedly doubled in September, and China's absence from trading during Golden Week accelerated the drain. "For the first time in 1.5 years since the inception of the #silversqueeze, we see a pressure release valve on the horizon," Ghali wrote, though he cautioned that market liquidity remains fragile.

The signs of a squeeze are clear. The paper-to-physical silver ratio estimates are as high as 378:1, meaning hundreds of paper claims exist for each real ounce. Physical premiums have risen at bullion dealers, while global stockpiles have dwindled amid five straight years of supply deficits.

Despite silver's explosive rise, the silver-to-gold ratio--now near 82--remains historically elevated, suggesting room for further gains if silver continues to catch up. By comparison, during past bull markets, the ratio compressed below 60.

However, comparing spot prices to past peaks requires context. Adjusted for inflation, silver remains far from its true historical highs. The 2011 high, relatively fresh in market memory, was $48.70, adjusted for inflation to about $69 in current dollars. Yet, the 1980 Hunt brothers’ peak of $49.45 would equate to roughly $192 per ounce today.

Per these calculations, silver is still trading nearly 30% below its inflation-adjusted 2011 level and over 75% below its 1980 equivalent. With lease rates soaring and inventories tightening, a short-term technical target of $75 per ounce does not look far-fetched.

Price Watch: iShares Silver Trust ETF (NYSE:SLV) is up 61.60% year-to-date.

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