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Silver's rally hits fresh highs
Silver has surged to levels not seen since 2011, driven by Fed rate cut expectations and tightening supply-demand fundamentals.
Federal Reserve rate cuts fuel precious metals demand
Speculation surrounding imminent Federal Reserve (Fed) rate cuts has provided a significant tailwind for silver, with dovish commentary from San Francisco Fed President Mary Daly reinforcing market expectations. The prospect of lower interest rates makes non-yielding assets like silver more attractive to investors seeking alternatives to cash and bonds.
Bond futures markets are pricing in roughly 90% probability of a rate cut at the Fed's September meeting, a development that has already begun reshaping precious metals positioning. Lower rates reduce the opportunity cost of holding assets that don't pay interest, making silver and gold more appealing relative to yield-bearing alternatives.
The dovish shift comes as labour market data continues to soften, with non-farm payrolls growth slowing and unemployment gradually ticking higher. This combination of factors is creating the perfect storm for precious metals, with silver benefiting from both its safe-haven appeal and improving relative attractiveness.
Investors are increasingly betting that the Fed's next move will be towards accommodation rather than further tightening. This monetary policy pivot represents a fundamental shift that could sustain precious metals demand well beyond the initial rate cut announcement.
Dollar weakness amplifies silver's appeal globally
The US dollar's recent softening has provided another crucial catalyst for silver's advance, making the precious metal more affordable for international buyers. A weaker dollar typically translates into higher commodity prices, as these are predominantly priced in the greenback.
This currency dynamic creates a self-reinforcing cycle where US dollar weakness leads to higher silver prices, which in turn attracts more investment flows into the metal. The relationship between the US dollar and precious metals remains one of the most reliable trading relationships in financial markets.
International demand has picked up noticeably as silver becomes more accessible to buyers using other currencies. This global dimension to the rally suggests the move has broader foundations than purely domestic US monetary policy expectations.
Supply deficit creates structural support for higher prices
Silver faces a deepening supply-demand imbalance that provides fundamental support for higher prices beyond the current monetary policy-driven rally. Industry analysts estimate that 2024 will see demand outpace supply by roughly 148 million ounces, creating a structural deficit.
This supply shortfall isn't expected to resolve quickly, with projections suggesting the deficit will persist into 2025. Such persistent imbalances typically create sustained upward pressure on prices, particularly when combined with other supportive factors like monetary policy easing.
Mining supply has struggled to keep pace with growing demand, particularly as ore grades decline and extraction costs rise. Environmental and regulatory challenges in key producing regions have further constrained new supply coming to market.
The combination of limited new supply and growing industrial demand creates a foundation for higher prices that extends beyond short-term trading factors. This structural element gives silver bulls confidence that the current rally has more room to run.
Industrial demand transforms silver's investment profile
Silver's growing role as an industrial metal has fundamentally changed its investment characteristics, moving beyond its traditional precious metals classification. The metal's increasing use in solar panels, electronics, and electric vehicles (EVs) has created new demand streams that are less sensitive to financial market sentiment.
Renewable energy infrastructure requires significant silver content, with solar panel manufacturing representing one of the fastest-growing sources of industrial demand. As governments worldwide accelerate green energy transitions, this demand component is expected to continue expanding substantially.
The technology sector's appetite for silver has surged alongside developments in artificial intelligence (AI) and advanced electronics. These high-tech applications often require silver's unique conductive properties, creating demand that's closely tied to technological advancement rather than traditional investment flows.
This dual nature as both a precious and industrial metal makes silver particularly sensitive to economic growth expectations. Strong industrial demand can support prices even when traditional safe-haven flows diminish, providing a more robust foundation for sustained price appreciation.
Market volatility creates trading opportunities and risks
Silver's smaller market size compared to gold makes it inherently more volatile, with price swings often amplified by the reduced liquidity. This characteristic has earned it the nickname 'the devil's metal' among traders, reflecting both its potential for dramatic gains and equally sharp reversals.
Recent holiday-affected trading sessions have demonstrated how reduced liquidity can magnify price movements in silver markets. Lower participation volumes mean individual trades can have outsized impacts on price discovery, creating opportunities for nimble traders.
Commodity trading requires understanding these liquidity dynamics, particularly around major economic releases and holiday periods. Successful silver trading often involves timing entries and exits around these high-volatility periods.
The metal's responsiveness to speculative flows means sentiment can shift rapidly, requiring traders to remain alert to changing market dynamics. Technical analysis becomes particularly valuable in identifying key support and resistance levels that can guide trading decisions during volatile periods.
Silver price technical analysis
Silver has enjoyed an impressive run since April, but this is just the latest leg higher in a run that has seen the price double since the 2022 lows. The latest multi-year high confirms the uptrend, and those that bought into weakness at the end of July have been the latest beneficiaries of the rally.
In the short-term however the price could face consolidation; previous sharp rallies have been followed up by weakness, and September is the second-weakest month for silver over the last 25 years, as shown below:
Silver seasonality chart
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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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