WHY SILVER PRICES WILL RISE / MACLEOD FINANCE

Why silver prices will rise

In this article, we detail the reasons behind silver’s disappointing performance and why they are now changing. China’s export and policies are now driving the price higher.

ALASDAIR MACLEOD

Introduction

Relative to its supply, silver is probably the most demanded industrial metal on the planet aside from the rare earth groups. 

It is now valued exclusively as an industrial metal, and its price has been driven more by global economic and not monetary demand, which is why it appears to have decoupled from gold.

Trump’s tariff policies have undoubtedly damaged the global economic outlook. 

Perhaps this is why the price of silver, along with that of copper was smashed in the wake of Trump’s so-called liberation day falling 15% in only four trading sessions. 

Until then, silver had been gaining ground in the belief that relatively non-cyclical demand against a background of supply deficiency would see prices continue to rise.

There is nothing in the price for its role as money, which is shown by a gold silver ratio in excess of 100 times. 

That in itself is an aberration likely to correct.

The relationship between silver’s price and investor interest is reflected in the chart below, of both price and open interest on Comex futures:

Before liberation day, the pattern was conventional. 

A rising price was accompanied by rising open interest and a falling price by falling open interest, indicated by the arrows. 

Unlike gold, silver has not been driven by declining confidence in the fiat dollar and it is not being accumulated by central banks. 

Put another way, paper markets have suffered a significant bear squeeze in gold, which has not been the case for silver.

That is until 7 April. 

As the chart above shows, suddenly silver’s price has risen in recent sessions while open interest has fallen sharply. 

In other words, the squeeze which has contributed to gold’s sharp rise is now beginning to be seen in silver.

Silver’s technical chart confirms the outlook is now for higher prices:

Having back tested support at the top of the previous 4-year consolidation, the price (arrowed) is now rising back above the moving averages which in turn are in bullish formation. 

Resistance at $34.75—$35 needs to be overcome, and then it should be off to the races.

Will moneyness return to silver?

It seems odd that there has been no premium in silver reflecting its historic role of money when gold is so strong. 

This year to date, gold is up 24% while silver is up 10.2%. 

Even copper has outperformed silver, up 15.5%. 

Add in long-term supply deficits and silver’s underperformance is even more remarkable. 

One explanation is that disappointed long speculators are easier for the establishment shorts to shake out, driving sentiment to very low levels. 

But that assumes that the shorts have access to silver bullion.

Until now, there has been evidence of price suppression by China. 

According to the Observatory of Economic Complexity, in 2023 China’s silver exports were $4.49 billion, mostly to Hong Kong, the UK, India and Singapore. 

Other than satisfying India’s industrial demand and some jewellery fabrication, the other centres are either financial or storage locations which strongly suggests an objective to keep prices subdued by supplying financial markets with both paper and physical metal.

The value of China’s exports at the average silver price is approximately 190 million ounces, which compares with the Silver Institutes supply deficit for that year of 200 million. 

It would be wrong to assume that these figures actually offset each other, but it does indicate the scale of China’s supply aimed at financial markets as opposed to satisfying industrial demand.

In 2024, China exported a similar amount to 2023, but other than Hong Kong there were no financial centres in the top destinations. 

The shift in destinations was accompanied by a rising price over most of the year, suggesting that China has modified its silver suppression policy.

Without Chinese supplies going to financial centres, during 2024 silver’s price rose by over 50%.

In recent weeks, the US has hit China with enormous tariffs. 

They are unlikely to affect the silver price directly, because the US only imported $115m’s worth of silver from China last year and there are substitutes available from Mexico and Canada. 

The impact of Trump’s tariffs is more likely to come from China’s reaction to them.

From China’s point of view, direct trade with the US is now a dead duck. 

Therefore, there is no reason for it to maintain a substantial dollar reserve. 

It is rational to expect China to sell down her US Treasury bonds as well as the dollars realised. 

Even without China’s other trade partners following suit, the impact on the dollar’s external purchasing power is bound to drive its value down in terms of commodity prices, principally reflected in gold and silver dollar prices.

In conclusion, China stopped suppressing silver in 2024, a fact which has gone unnoticed. 

There is nothing now to stop other factors coming into play. 

We can see supply and demand, monetary factors, market factors, and technical analysis all pointing to similar outcomes — that is far higher silver prices and the gold/silver ratio reverting towards some sort of normality.