Key Points:
- Silver prices jumped 6.6% on Wednesday to reach nearly $86.
- The Silver Institute predicts a market deficit for the sixth straight year.
- Speculative buying from China is driving much of the recent volatility.
- A weaker U.S. dollar and low bond yields are boosting precious metals.
Silver prices shot up again on Wednesday, climbing as much as 6.6%. This latest jump continues a wild ride for the metal, which has seen extreme highs and lows recently. The price is now about 33% higher than last week’s low, reaching roughly $85.96 an ounce. Gold also joined the rally, rising above $5,100.
A new report from the Silver Institute helps explain the chaos. They predict the silver market will remain in a deficit for the sixth year in a row. However, the reasons are shifting. While investors are buying up silver aggressively, actual industrial use is slowing down. The market effectively has a tug-of-war between financial speculators and companies that actually use the metal to build things.
High prices are scaring away traditional buyers. The report forecasts that demand for silverware will drop by 17% this year, while jewelry demand will likely fall by 9%. Even the solar energy sector, usually a huge buyer, is cutting back. Solar companies are actively finding ways to use less silver or switch to cheaper materials to save money on their panels.
Much of the buying frenzy is coming from China. Traders there are piling into the market, creating a backlog of orders that local producers cannot fill fast enough. This speculative fever has pushed prices on the Shanghai Futures Exchange to record levels compared to the rest of the world.
Not everyone agrees that a “deficit” is the right word. Analysts at BMO Capital Markets argue that this is just inventory moving from warehouses to investor stockpiles. They believe silver will eventually become cheaper compared to gold as the physical supply improves in the coming years.
Broader economic news also helped lift prices on Wednesday. The U.S. dollar weakened for the fourth day straight, making metals cheaper for foreign buyers. Investors are also watching for the upcoming jobs report. With 10-year bond yields staying low and talk of more interest rate cuts from the Federal Reserve, the environment remains friendly for precious metals.
