Spot silver price broke above $30 an ounce this week, hitting its highest level in more than a decade. The precious metal closed up 6.5 per cent at $31.49 an ounce on Friday, a new high level since February 2013. Silver prices have soared 32 per cent so far this year, outpacing gold and making it one of the best-performing major commodities this year.
Behind the rise in silver prices is a combination of investor sentiment, signs of improvement in industrial demand, and a projected fourth year of shortages in silver supply. Phil Streible, chief market strategist at Blue Line Futures, said in a phone interview on Friday that a renewed meme-stock chasing frenzy this week has also driven the silver price rally. Silver is usually a favoured area for these speculators.
In fact, at one point in 2021, silver was a target market for retail traders on Reddit during the meme stock rush that caught the eye at GameStop and other small-cap stocks.
A breakout of the precious metal above the $30 mark could trigger heavy buying activity by exchange-traded funds, which could increase the risk of a silver squeeze, especially with the resurgence of the meme stock craze, which has filtered into the silver market before, said Daniel Ghali, senior commodity strategist at TD Securities.
Investors have remained net sellers of physically-backed silver ETFs so far this year, data compiled by Bloomberg shows. Money fund managers remained net bullish on Comex silver futures as of 7 May, holding a total short position of 12.5 per cent of the total open interest, according to data from the US Commodity Futures Trading Commission (CFTC).
This is despite the fact that silver has outperformed gold this year as one of the best major commodities. However, silver is still cheap compared to the price of gold, which is near an all-time high.
Historically, silver and gold have moved in much the same direction, as both have similar macro and currency hedging properties. With gold hitting record highs driven by central bank buying, retail interest in China and renewed bets on an imminent US interest rate cut, silver has followed.
Alex Kuptsikevich, senior market analyst at FxPro, noted in a report on Friday that the silver market doesn’t look overheated and is only now entering overbought territory on the daily RSI on technical charts. Silver was aggressively added to for another three weeks last month after the RSI moved above 70. a two-week pullback in the second half of April eliminated this overbought area. Technically, this cleared the way for a move higher.
The near-term target for silver is $33 an ounce; however, the precious metal could make a run at the all-time high of $50, he added.
In a recent interview with Kitco News, Michele Schneider, director of trading training and research at MarketGauge, said that silver’s value investment makes it a more attractive investment than gold. The $30 level is a key resistance position for silver, and if silver can hold $29 and effectively break above $30, the eventual $35 and $40 resistance is actually much less.
Julia Khandoshko, chief executive of European broker Mind Money, said she believes this move in silver reflects broader bullish momentum in the commodities market. The rally in silver comes as copper prices have risen to record highs above $5 a pound. Today, all metals, including silver, are rising for the simple reason of caution about global economic growth.
With Ole Hansen, head of commodities strategy at Saxo Bank, pointing out that platinum prices are also on the move, it’s safe to say that the precious metals are finally enjoying a full-blown rally. The gold-silver ratio is not far from its long-term average, so stronger silver could mean stronger precious metals in general.
