Silver Surge: Supply Constraints and Global Demand Impact PricesMarket Trends and Price Surge
Silver prices CAPITALCOM:SILVER have experienced a remarkable upswing, climbing over 74% on the COMEX since January, surpassing gold’s gains for the year. In the past 30 days alone, the price has jumped by more than 21%. We can see heightened market activity. This rally is in line with gold's rising price, but it has gained speed due to specific supply and demand factors.
Supply Shortages and Liquidity Challenges
A critical factor behind the price surge is a pronounced shortage of silver, particularly evident in London. The scarcity has triggered a short squeeze, where investors betting on price declines face losses as prices rise, forcing them to cover positions. A short position involves selling a silver contract with a commitment to deliver at a future date; if prices climb instead, losses mount, and delivery obligations intensify without available supply. London’s benchmark prices have spiked, recently showing a $3 premium over New York futures, an unusual gap prompting some traders to ship silver across the Atlantic, a move typically reserved for gold due to silver’s bulk and transport costs.
COMEX warehouse stocks, hovering around 500 million ounces in late summer, have shown no significant buildup despite minor fluctuations, suggesting much of the metal is tagged as “eligible” but not readily available. London vault inventories, per LBMA data , continue to decline monthly, underscoring a persistent supply deficit. Liquidity crunch, amplified by elevated lease rates for borrowing silver, signals ongoing market strain.
Industrial and Indian Demand Pressures
The supply crunch is worsened by robust demand, especially from industrial sectors like electronics, batteries, and solar panels, where silver is indispensable. India, the largest consumer, has intensified this pressure. Since the country meets 80% of its silver needs through imports, it doubled its imports this year ahead of Diwali, which is the main period for purchasing silverware, jewelry, coins, and industrial materials.
Geopolitical and Economic Influences
The rally is also supported by expectations of U.S. Federal Reserve rate cuts and escalating geopolitical tensions. China’s export restrictions, introduced in April for seven rare earth elements and expanded to 13 with Announcement No. 61 , include controls on magnets and processing technologies vital for defense and advanced chips. Access-restricting measures have heightened concerns about supply disruptions, prompting the US to bolster domestic production.
Investment Considerations
Much of silver’s trading occurs via derivatives rather than physical metal, a pattern reminiscent of supply chain disruptions during the pandemic, which halted production due to part shortages. Reliance on derivatives, coupled with limited physical stocks, underpins the current price momentum, outpacing even gold. Companies in tech and manufacturing often use derivatives to mitigate silver shortage risks, though the market’s small size amplifies volatility.
Gold offers a stable long-term entry point, while silver requires timing due to its volatility. Technical indicators, such as the daily MACD, show strong upward momentum for silver, akin to gold’s bull market, but it is entering overbought territory, signaling potential for sharp intra-day swings. So, silver at this moment a high-risk, high-reward option, unsuitable for cautious investors.
