By Ahmad Assiri, Research Strategist at Pepperstone
Silver’s 10% surge in a week is still rooted in genuine physical tightness rather than a broad macro driven demand shift. The squeeze we saw in October created a meaningful imbalance in the market and that stress didn’t fully eased through November. We can still see it in indicators that matter most for silver like one-month lease rates remain elevated, meaning that spot metal is scarce and buyers are willing to pay a premium to secure supply. The futures curve also remains backwardated where immediate metal is valued far above future delivery
In this trading environment, speculative money naturally follows. Fast money – fast in fast out – traders are drawn to markets where dips are quickly absorbed which is a highly noticeable trading patten this week. Systematic players, thinking of CTAs to macro funds, have treated silver as a strong momentum story with a solid bid – as it should after a 99% gains YTD. This dynamic becomes self reinforcing by limited supply in face of persistent demand and a market structure that clearly rewards staying long.
ETF demand is adding another reason of strength. Strong inflows into sliver ETFs yesterday and in a market that isn’t deep to begin with, ETF buying can move the needle . ETFs may or may not be the primary driver of this rally but they do amplify the tightness especially as retail and tactical investors often access silver through these vehicles. It’s worth recalling that some funds not long ago halted new creations because they couldn’t source enough physical metal, a clear one of how stretched the supply of the metal has been. So when ETF inflows pick up again, the market reads it as confirmation that tightness is still very much in play and the party is likely to extend further…
Overall, interesting setup for sliver and the rally is a blend of physical constraints and speculative positioning that feeds off those constraints. It’s hard to chart a clear path ahead for sliver with a great deal of certainty but it’s certainly choppy market for day traders and higher volatility of the metal is almost certain for the day ahead.