Combined Forces of Macro Favorable Factors and Capital's Rush to Buy Amid Continuous Price Rise: Silver Market Ushers in "Golden Moment" [SMM Analysis]

Market Movement - Silver Prices Surge to New Highs

 In early June, driven by multiple positive factors, silver prices rose sharply, breaking out of the previous rangebound fluctuation pattern. On June 5, London spot silver surged 4.5% in a single day, breaking through the $36/oz mark and reaching its highest level since February 2012, with a cumulative weekly gain exceeding 9% (compared to gold's 0.6% gain over the same period). Domestically, the most-traded SHFE silver contract reached a record high of 8,804 yuan/kg, while A-share silver concept stocks (such as Hunan Silver and Baiyin Nonferrous Group Co., Ltd.) all hit their daily limits.

Currently, the gold-silver ratio stands at 85-90 (i.e., 1 oz of gold ≈ 90 oz of silver), significantly higher than the 40-50 average over the past 50 years. Some market traders believe that silver is severely undervalued relative to gold. Based on the historical pattern of the gold-silver ratio reverting to its mean after a crisis, the current silver price rally is poised to ignite.

1. Concentrated Macro Catalysts

In terms of macro news, the steel and aluminum tariff issue and the Eurozone's interest rate cut jointly contributed to the significant rise in silver prices.

On one hand, on June 3, Trump signed an executive order raising tariffs on imported steel from 25% to 50%, effective from June 4. The market feared that critical metals like silver could be the next target. Previously, on May 30, Trump had already expressed related expectations at a rally in Pennsylvania and posted about it on social media. On June 2, London spot silver prices broke through the oscillation range for the first time, reaching $34.774/oz. Due to the Dragon Boat Festival holiday in China, domestic spot silver TD prices opened higher with a gap at 8,500 yuan/mt after the holiday (on June 3).

On the other hand, the European Central Bank (ECB) announced its interest rate decision on the evening of June 5, cutting the three key interest rates by 25 basis points. This marked the eighth interest rate cut since June 2024. The current deposit facility rate was lowered from 4% to 2%. The Eurozone economy faces downside risks, and the ECB may increase monetary easing efforts in H2. These factors bolstered bullish confidence in the silver market, leading to a second high open and upward trend in silver prices. Additionally, factors such as the contraction in the US service sector, slowing employment, the Russia-Ukraine conflict, and tensions in the Middle East have indirectly boosted the safe-haven demand for precious metals, though not enough to solely trigger a significant rally in silver prices.

2. Technical Momentum and Capital Enthusiasm Follow

Technically, after breaking through the key technical resistance level of $34.8/oz, silver triggered program trading to rush to buy amid continuous price rise, with capital enthusiasm following suit. The next target level is projected to be $38-40/oz. As of June 9, silver ETF open interest increased from 13,900 mt on May 16 to 14,700 mt, a gain of nearly 6%, indicating strong market enthusiasm for silver. Hedge funds reduced their long positions in gold and shifted them to silver, further driving a significant rally in spot silver prices.

3. Industrial demand supports the destocking trend of silver bars

Looking ahead, the supply-demand gap in the global silver market is expected to continue widening in 2025. Despite a slowdown in the growth of industrial demand, the supply of refined silver is constrained by mineral raw materials and recycling technology, and the total global inventory of silver bars will remain dominated by destocking. Previous tariff concerns led to a significant transfer of spot silver bars to the New York market, and currently, both London and domestic spot silver inventories are at their lowest levels in nearly three years.

Trend Outlook

In June, market sentiment is leaning towards the bullish side, and favourable macro front factors are expected to continue supporting silver prices to rise, with silver prices likely to remain in a state of upward fluctuation in the short term. Against the backdrop of easing crises and the gradual realization of interest rate cut expectations, the performance of the silver market is expected to outperform that of gold, and the gold-silver ratio may also experience a correction and recovery. However, following the rise in silver prices, downstream enterprises are generally adopting a wait-and-see attitude, only making small purchases on dips and actively negotiating prices, with spot premiums pulling back from highs. Meanwhile, it is necessary to remain vigilant against potential impacts such as an unexpectedly delayed interest rate cut by the US Fed, a contraction in profits and a decline in production in the PV end-use product sector.

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