Silver Price Surge: Market Dynamics and Future Outlook

Silver Soars to Highest Level Since 2011 Amid Supply Concerns

Silver prices surged notably on Friday, reaching their highest levels since 2011, driven by increased demand and tightening supply in the market. Spot silver surpassed $38 per ounce, while New York silver futures rose by a similar percentage.

A key factor behind this surge is the rising premium in the US market, indicating that buyers are willing to pay more to acquire immediate silver. Additionally, the London spot market shows signs of supply tightness, further increasing price pressure.

Market Dynamics and Influencing Factors

Earlier this year, silver also experienced instances of price discrepancies across different markets. At that time, the anticipation of additional tariffs on silver imports in the United States pushed up silver futures prices in New York.

Arbitrage opportunities also drove up silver leasing rates, as traders rushed to secure the shipment of silver to warehouses linked to the Comex exchange. However, this rush subsided after the White House confirmed that precious metals would not be affected by comprehensive tariffs.

On Friday, the one-month implied annualized leasing rate for spot silver in London rose to approximately 4.5%, significantly higher than the typical level near zero. This rise is a sign of tension in the market.

The Role of Exchange-Traded Funds (ETFs)

Exchange-traded funds (ETFs) are major holders of silver in London, meaning that this silver cannot be easily lent or bought. Bloomberg data shows that inflows into silver ETFs have been strong recently, with holdings increasing by 1.1 million ounces on Thursday alone.

Liquidity Shortage in the Market

Daniel Ghali of TD Securities believes that outflows of silver caused by the arbitrage frenzy sparked by tariff threats have reduced the inventories of freely tradable silver in the London market to dangerous levels.

"We estimate that the free float of London Bullion Market Association (LBMA) silver has fallen to its lowest level on record," Ghali wrote in a report on Thursday. He added that "the illusion of liquidity in silver suggests that the market can only rebalance through some form of a spot squeeze."

Increasing Industrial Demand

Silver prices have risen by 30% this year, with recent gains surpassing those of gold. Silver has dual properties: it is both a financial asset and an industrial raw material, especially in clean energy technologies. As a key component in solar panels, industrial demand for silver is becoming increasingly important.

According to data from the Silver Institute, the silver market will, in this context, experience a fifth consecutive year of supply shortages.

Impact of Geopolitical Tensions

On Friday, escalating concerns about Trump's recent tariff statements prompted investors to turn to safe-haven assets, with the spot gold price rising by more than 1%, exceeding the $3360 level. The spot palladium price rose by 6%, reaching around $1272 per ounce, its highest level since October 2023.

Soojin Kim, an analyst at Mitsubishi UFJ, says that Trump's broad policy proposals this week, including imposing new tariffs on Canada, Brazil, and copper imports, have increased market uncertainty ahead of August 1, thereby enhancing the attractiveness of safe-haven assets. Meanwhile, market expectations that the Federal Reserve will take a more dovish stance are also supporting investor demand for gold. Minutes from the Federal Reserve's June meeting show that only a few officials expect no interest rate cuts this year.

Royal Bank of Canada on Friday delayed its forecast for a Federal Reserve interest rate cut from September to December.