Silver's rally hits fresh highs

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 dollar weakness leads to higher silver prices, which in turn attracts more investment flows into the metal. The relationship between the 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

​Bulls will be encouraged by recent higher lows at $37.15 and $36.25, which may provide support in the event of a pullback.

​Silver charts

How to trade silver's continuing rally

Understanding the multiple drivers behind silver's rally is crucial before considering any trading positions. The combination of monetary policy expectations, supply-demand fundamentals, and industrial demand creates a complex backdrop that requires careful analysis.

​Choose whether you want to trade silver's price movements or invest in the physical metal itself. Trade silver offers exposure to price movements without the complexities of physical ownership, while providing leverage opportunities for those seeking amplified returns.

​Open a trading account designed for commodity markets, ensuring you have access to real-time pricing and advanced order types. Silver's volatility makes features like stop-losses and limit orders particularly valuable for managing risk effectively.

​Search for silver markets on our trading platform and determine your position size based on your risk tolerance. Given silver's inherent volatility, smaller position sizes relative to your total capital are often prudent.

​Place your trade with appropriate risk management measures in place, including stop-loss levels and profit targets. How to invest in silver provides additional guidance on structuring positions effectively. Consider starting with a demo account to practice trading silver's volatile price movements before committing real capital.