Is This a Perfect Storm for Silver?

Well, silver and gold rallied strongly on Friday after the release of weak employment numbers from August. The market now believes it's a certainty that the Fed will resume rate cuts this month, with the only question being whether they cut a quarter or a half point.

It makes sense that gold is so strong. Tariff turmoil, a weak dollar, debt problems, central bank issues, and bad economic data tend to be positive for gold. But the bigger story lately has been silver.

The poor man's gold zoomed through $35 this summer, touched $40, and then blasted through the $40 resistance zone only weeks later. It’s the first time silver has eclipsed $40 since 2011 and it's only spent a few weeks above this nominal price level ever.

Looking at the market action here for the week, silver is up 3.7% now to check in at $41.23 an ounce. Gold is seeing a real nice bump here today and is over $3,600 an ounce now for the first time ever. Currently gold trades at $3,611 and is up more than $160 on the week or 4.7%.

Platinum is up 1.7% to come in at $1,396 and finally palladium is up 3.0% to check in at $1,140 as of this Friday late morning recording.

So, what is driving this latest bull run?

First, lower interest rates are considered bullish for the metals, given that they are non-yielding assets. A lower rate environment means a lower opportunity cost for holding them.

There has also been a move into safe havens. Last week, a federal judge held that most of President Donald Trump’s tariffs were unconstitutional. That has created a significant level of uncertainty in the markets.

Worries about Fed independence and some soft economic data contributed to the pivot to safe havens as well.

This is taking place in an environment that was already cautious. September and October have historically been rough months for stocks. While it may be nothing more than a self-fulfilling prophecy, the number of times it’s been mentioned in the mainstream financial media indicates it is on people’s minds.

More fundamentally, silver is getting a boost from tight silver supplies, particularly a decline in liquidity in the London market.

This started last summer when tariff worries drove a significant amount of metal out of London and into the U.S.

This occurred in a silver supply environment that was already tight. Demand outstripped the silver supply for the fourth consecutive year in 2024. The structural market deficit came in at 148.9 million ounces. That drove the four-year market shortfall to 678 million ounces, the equivalent of 10 months of mining supply.

When demand outstrips mining and recycling output, industrial users of the metal are forced to wade into the market to access existing stocks of silver. This pushes the price higher.

Industrial demand set a record for the fourth straight year in 2024.

Even before the tariff-related outflows, physical silver was already moving out of London. Silver holdings peaked in 2021 at 1,180 million ounces. That was down 30 percent by the end of last year.

Strong demand for physical silver in India has also contributed to this drawdown in silver stocks within Europe. Silver jewelry and investment demand have remained strong despite a series of record highs in rupee terms. Demand is expected to remain robust as the country enters into the wedding and festival season.

Metals Focus pointed out that even though there is plenty of silver in London, about 80 percent of it is held against physically backed silver ETFs. That’s the highest share since LMBA vault data became available in 2016.

While silver supplies tighten overall, there is still plenty of untapped demand in the marketplace.

Despite rising prices, investor activity has remained subdued in key sectors, particularly in the U.S. For example, silver coin and bar sales have shrunk so far this year.

Silver Institute data shows that weak demand in the physical silver investment market is almost entirely being driven by Americans. Asian demand has been robust – especially in India. European silver demand has shown signs of recovery, although it is coming off a relatively low base.

However, in the U.S., we’ve seen investors taking advantage of higher prices and selling to take a dollar profit. This is similar to the dynamic in the gold market, where U.S. investors have also remained on the sidelines.

According to the Silver Institute, retail silver investment is down about 30 percent in the U.S.

When U.S. investors finally get into the game, it could drive silver prices even higher.

Here at Money Metals, we believe Americans will start to look at silver as a bargain, and even when it's at $45 or $50 or $55. This interest in silver could gain momentum, especially if it gets over that $50 price which we think will happen next year. If silver breaks through $50, it's likely to go quite a bit higher from there.

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