(Bloomberg) — Silver (SI=F) extended gains after breaking above $60 an ounce for the first time on Tuesday, with momentum coming from supply tightness and bets on further monetary easing by the US Federal Reserve.
The white metal rose as much as 1.6% to a record of $61.6145 an ounce on Wednesday. Its rapid advance in recent days has been supported by speculative money wagering the US central bank will deliver a quarter-point rate reduction at the end of its Dec. 9-10 meeting. Lower borrowing costs are typically a tailwind for non-yielding precious metals. In bond markets, global yields have risen to highs last seen in 2009.
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“Silver has a big retail and speculative base,” said David Wilson, director of commodities strategy at BNP Paribas SA. “Once you have an upside momentum, it tends to bring in more money.”
The market is also looking beyond this week’s Fed decision in search of clues on US monetary policy next year. Kevin Hassett, the front-runner in President Donald Trump’s search to replace Jerome Powell as Fed chair, said Tuesday that he sees plenty of room to substantially lower rates.
Silver has more than doubled in value this year, eclipsing gold’s 60% rise. Its rally has gathered pace since a historic supply squeeze in October. Though this crunch has eased as more metal flows into London vaults, borrowing rates remain elevated — an indication of lingering tightness. Other markets are now seeing supply constraints, with Chinese inventories at decade lows.
The rally has also been supported by inflows to exchange-traded funds. Last week, more money flowed into silver-backed ETFs than in any single week since July. Call volumes on the biggest such fund spiked on Tuesday to a level similar to that seen during the short squeeze, showing that investors are positioning for more upside.
The silver market has become “overexcited” and prices are currently about 15% too high, Guy Wolf, global head of market analytics at Marex Group Plc., said in an online briefing, adding that interest from private wealth managers looking for alternative investment is benefiting precious metals to a certain extent.
Given the rally of roughly 20% over the past three weeks, “logically, we should be seeing a correction,” said Wilson pf BNP Paribas. “But given the strong positive sentiments in the markets right now, with some talking about $100 silver, it’s entirely possible that the momentum continues.”