(Dec 12): Silver jumped for a fourth day, as exchange-traded fund (ETF) inflows, momentum-following and physical market tightness pushed the white metal towards its best year since 1979.
The precious metal rose to an all-time-high above US$64 an ounce on Friday morning, with prices fluctuating wildly. Silver has gained about 10% this week, bolstered by dovish signals from the Federal Reserve, which made an expected rate cut and pointed to signs of weakening in the US labour market. Lower rates are a tailwind for non-interest bearing precious metals like silver.
Most analysts said the scale of the advance was difficult to connect to a single driver. Price gains in silver can sometimes spur further upside, as retail investors and momentum traders are drawn to the notoriously volatile metal.
This week’s rally comes just two months after the London silver market dipped into a full-blown squeeze, as inflows into ETFs and exports to India eroded inventories that were already critically low. London’s vaults have seen significant inflows since then, but much of the world’s available silver remains in New York, as traders wait for the outcome of the US’s Section 232 probe, which could lead to tariffs or trade restrictions on the metal.
“Until the lights come on, silver continues to stage an increasingly risky blow-off top,” Daniel Ghali of TD Securities wrote in a note on Thursday. “We expect no tariffs on silver to reignite liquidity dynamics in favour of sharply lower prices.”
See also: Copper resumes gains back towards record on tight supply outlook
The gold-silver ratio, which is sometimes used by traders to assess the relative cheapness of the white metal, fell to the lowest since 2021 on Thursday, at about 1-to-67.
One indication of speculative fervour was the level of call option buying, both on silver futures and on ETFs, which track the volume of the metal. Call options give the buyer the ability to buy a security at a pre-determined price level. They’re a cheap way to bet on upside in prices.
See also: Coal’s grip on Asia strengthens as early phaseout bids stall
On iShares Silver Trust (SLV), the largest silver ETF, total call open interest hit the highest since 2020 this week. The cost of buying calls relative to the cost of buying equivalent puts, which protect against downside in prices, has also jumped to a years-long high in recent weeks.
“There has been a lot of fresh bullish interest in options on both the CME future and SLV,” said Edward Sternberg, head of metals options at Optiver Holding BV, noting that this appeared to be driving silver prices more than short covering.
“Since SLV is popular with retail as well as institutional investors, the call buying likely has come from both sides,” Sternberg said. “There has been a surprising lack of interest in puts despite the big rally.”
While the short-term price action in silver has been “excessive,” the longer-term fundamental outlook remains positive, according to Carsten Fritsch, commodities analyst at Commerzbank AG. Earlier in the week, the Silver Institute — a trade body for the industry — released a report pointing to the the growth in consumption for industrial applications, forecasting a sharp rise in demand for solar photovoltaics and electric vehicles.
Higher prices for input materials tends to encourage manufacturers to find efficiencies or substitute them out. TD’s Ghali argues that the dramatic jump in silver will have already dented industrial demand, writing that the white metal now accounts for roughly a quarter of the photovoltaic cost structure.
Silver prices have climbed 120% this year, outpacing a 65% advance in gold. Key to its recent advances have been inflows into ETFs, which have added 35 million ounces of silver in the past month, according to Bloomberg calculations.
Silver rose 1.1% to US$64.23 an ounce as of 1.56pm in London. Gold rose 1.4%. Platinum and palladium both climbed. The Bloomberg Dollar Spot Index edged higher.
Uploaded by Felyx Teoh
