Silver Trades Near Record High on Tight Supply, Rate-Cut Hopes

SI=F +1.14% GC=F +0.70%

(Bloomberg) — Silver (SI=F) jumped more than 2% to a record high, with traders placing speculative bets given ongoing supply tightness and rising expectations for an interest-rate cut in the US. Gold was steady.

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The white metal rose as high as $57.86 an ounce, before paring some gains. It has climbed for six consecutive days and doubled in value this year, outpacing a roughly 60% rally in gold (GC=F).

A record amount of the metal flowed into London in October to ease a historic squeeze in the world’s biggest silver trading hub. This in turn has put other centers under pressure: inventories in warehouses linked to the Shanghai Futures Exchange recently hit their lowest in nearly a decade, bourse data shows, and the cost of borrowing the metal over one month remains elevated.

“Shortages in the global market as a result of the recent squeeze in London are still being felt,” said Daniel Hynes, a commodity strategist from ANZ Group Holdings Ltd. “With gold taking a breather, it appears investors have turned their attention to silver.”

Both metals have also got a boost from increased expectations that the Federal Reserve will cut interest rates in December. Markets are fully pricing in a quarter-point rate cut on continued weakness in the American labor market and a crescendo of dovish comments by Fed officials over the last week. The release of economic data delayed by the US government’s six-week shutdown has also supported the case for lower borrowing costs, which typically benefit non-yielding precious metals.

“The move last week has been speculatively driven, with accelerating upside momentum attracting more and more fast money,” David Wilson, director of commodities strategy at BNP Paribas SA. “Key to watch is the fact that the gold-silver ratio has got down close to 70,” he said, adding that investors will be watching how expensive silver is getting relative to gold.

The ratio indicates how many ounces of silver are needed to buy one ounce of gold.

Traders are also monitoring any potential tariff on silver after the precious metal was added to the US Geological Survey list of critical minerals last month. Fear of a sudden premium in America might make some traders hesitant about sending the metal out of the country, offering little prospect of relief should the global market tighten further.

Investor interest in silver increased last month, with inflows to physically backed exchange-traded funds accelerating after investors booked profit in October following the previous high.

Silver miners advanced on Monday. In Australia, Sun Silver Ltd. was up almost 21% at its peak and Silver Mines Ltd. nearly 13%, while Hong Kong-listed China Silver Group Ltd. rose 14% before paring some gains.

Global markets were also taking stock after an hours-long trading disruption on the Chicago Mercantile Exchange on Friday. With futures and options contracts on the Comex affected by a data-center fault, some metals traders said they had reverted to calling brokers and dealers by phone to hedge their exposures.

Silver traded 0.8% higher at $56.6820 an ounce at 3:47 p.m. Singapore time. Gold was little changed at $4,241.33 an ounce. The Bloomberg Dollar Spot Index was flat. Platinum gained, while palladium was down slightly.

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