Silver ended the week at its highest level in years, bringing the historic high of 2011 within sight. According to a recent market report, the COMEX front month for silver closed at around $47.60 per ounce – a weekly gain of just under 3% and a year-to-date increase of around 64%. The precious metal silver even outperformed gold, underscoring the observation of many market participants that in an advanced phase of a commodity cycle, the white metal often takes the lead. The decisive factor is less a single impulse than the interplay of scarce availability, robust inflows and signals from the derivatives market.
Silver Price at Multi-Year High – What is Driving the Increase
According to reports, drivers of the silver price include dwindling inventories, rising leasing rates (the price for borrowing physical metal) and structural demand from industry and ETFs. The market is increasingly described as “tight,” which is reflected in a significant increase in the price of short-term availability. Observers classify the development in the “second phase” of the commodity cycle, in which silver (XAG/USD) traditionally reacts more sensitively to scarcity and capital inflows than gold.
The analysts at TD Securities speak in this context of a “silver squeeze dynamic” in which investors could actually get involved. According to their statements, freely available LBMA inventories in London have fallen to a “critically low” level. At the same time, the costs for short-term borrowing of silver would rise, which is often read as a signal of scarcity.
Scarcity Signals: LBMA Inventories, Leasing Rates and ETF Inflows
Specifically, TDS refers to a London silver inventory of approximately 135 million ounces – a volume that is considered low in relation to daily trading volume. In addition, leasing rates have reached levels that are described as “extreme.” Both together indicate a tight supply situation in which additional demand quickly meets limited physical supply.
Important from a market perspective: TD Securities estimates that with continued ETF inflows and continued industrial demand, freely available inventories could be exhausted in less than four months. Although the market remains fundamentally liquid, the buffers appear smaller. This in turn increases the sensitivity of the silver price to new demand impulses or logistical disruptions. In addition, reference is made to a high paper-to-physical ratio (estimates up to 378:1) – an indicator that numerous paper claims are offset by a comparatively limited number of real ounces.
Global Demand: India Imports Strongly, China Pauses
On the demand side, India and China stand out – albeit for different reasons. According to the report, India’s silver imports increased significantly in September, even doubling in some estimates. These flows additionally draw metal from the international market, which can reinforce the perception of scarcity. At the same time, the Golden Week holiday break in China temporarily led to lower trading activity – a factor that can have a dampening effect in the short term, but does not call into question the fundamental demand picture for silver.
In addition, there is the supply side: According to the report, the market has already recorded a supply deficit for the fifth year in a row. Declining global inventories, higher premiums in retail and the aforementioned leasing rates provide consistent signals.
Despite the strong movement, the silver-to-gold ratio (gold/silver ratio) remains at a historically elevated level of around 82, according to the report. In earlier boom phases, this key figure sometimes fell below 60 – an indication that silver would still have potential to catch up compared to gold if the current phase continues. At the same time, a look at history urges caution: Nominal price comparisons fall short if inflation is not taken into account.
As a reminder: According to the calculations used in the report, the nominal high of 2011 at just under $49 per ounce would correspond to approximately $69 today. The more extreme 1980s high in the wake of the Hunt Brothers episode would even be around $192 per ounce adjusted for inflation. From this perspective, silver is currently trading significantly below the inflation-adjusted record marks. Against this background, some market commentaries mention technical marks up to $75 as a possible short-term scenario – without claiming to be a forecast, but as a classification of the current dynamics.
Silver is approaching its 2011 level, driven by tight inventories, high leasing rates, robust ETF inflows and strong industrial demand. Whether this will result in a sustained squeeze depends on the further development of physical availability and capital inflows. For market observers, silver remains a focal point of precious metal reporting – between statistical bottlenecks, historical classification and the constant comparison of spot price, futures market and real delivery capacity.
The previously rapid increase has now lasted so long that all segments of the market are benefiting. From producers such as
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