Silver’s Rally Fueled by Broad Demand and Speculation: Refiner

Silver’s record-breaking rally is being driven by a collision of unprecedented physical demand and speculative interest in a relatively illiquid market, according to a leading refiner and trader.

“There’s immense silver demand, in a way that we’ve really not seen before,” MKS PAMP SA Chief Executive Officer James Emmett told Bloomberg News in an interview. “It’s not a market that traditionally has that level of speculation, and you are definitely seeing more price action driven by short-term players.”

Silver more than doubled last year – its best annual performance since 1979 – and has continued an extraordinary rally by gaining a further 50% so far this year. On its way to a record above $117 an ounce on Monday, the white metal posted its biggest intraday jump since the global financial crisis in 2008.

Worldwide upheaval and the so-called debasement trade, whereby investors retreat from sovereign bonds and currencies in favor of hard assets like precious metals, have underpinned the blistering rally. But silver has rallied harder and faster even than gold, with wild intraday swings reflecting a market overwhelmed by speculative interest.

Part of this is due to lower liquidity. At current prices, based on average volumes in London, the daily value of gold transactions in London is about five times that of silver. Even then, recent price moves have been much more extreme than usual.

Investors have been driven by a fear of missing out and are “chasing the price action,” Emmett said. Some investors, concerned they had missed the bandwagon for gold, used silver as a substitute and “a sort of macroeconomic geopolitical play,” he said.

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Physical demand remains a crucial driver of silver prices, with retail and wholesale orders continuing to outstrip supply, Emmett said. In part, market tightness in the broader wholesale market is due to large amounts of metal moving to India even as outflows from Comex warehouses gives the London market some breathing space.

India’s massive appetite for silver was a crucial factor behind the last year, when buyers piled into the London market ahead of the Diwali festival just as large volumes were locked in Comex warehouses due to tariff worries.

Market tightness has also resulted in some silver — like gold — being transported by air, rather than by traditional sea routes. “Now, you simply can’t spend time with the container on the boat,” Emmett said.