Bulls in the silver market are restless, with the gold-silver ratio recovering. Can silver prices reach new highs after a high-level correction? [SMM Analysis]

I. Silver Prices Hit New Highs; Domestic Silver (T+D) Surpasses 9,000 yuan/mt Target

This week, silver prices surged sharply after a pullback, contrasting with gold's performance amidst volatility. Domestic and overseas silver prices strengthened in tandem, attracting significant long positions. On Wednesday, domestic silver (T+D) prices reached a new high of 9,040 yuan/mt, while the London Bullion Market Association (LBMA) silver price broke through the key target of $37/oz.

II. Gold-Silver Ratio Corrects; Silver Emerges as a Safe-Haven Alternative

The escalation of conflicts between Israel and Iran this week boosted market risk aversion. With gold prices consolidating at high levels, undervalued silver became a safe-haven alternative for funds. As silver was not synchronously allocated during previous rounds of gold price increases, the gold-silver ratio corrected after recent stagnation in gold prices and silver's breakthrough of key resistance levels. This change highlighted silver's speculative nature, boosting enthusiasm among long positions.

Silver possesses triple attributes: financial, industrial, and speculative, each capable of driving silver prices higher under specific conditions. When the speculative attribute dominates, silver prices rise while the gold-silver ratio falls; when industrial demand dominates, silver prices rise while the gold-silver ratio still falls; when the financial attribute dominates, both silver prices and the gold-silver ratio rise simultaneously.

Regarding economic data and interest rate cut expectations, the market generally expects the US Fed to maintain the interest rate range at 4.25%-4.50%. Although the Fed has hinted at increased stagflation risks, the market still expects two interest rate cuts this year. Investors will closely monitor Fed Chairman Powell's remarks after policy decisions to seek signals for future monetary policy. Currently, market expectations for Fed easing in H2 have risen, and silver prices are expected to maintain a medium and long-term bullish trend under this backdrop.

III. Spot Market Transactions and Inventory Situation

In the consumer market, end-use consumption weakened in June. The strengthening of silver prices led some enterprises to adopt lower silver-content formulations or alternative technologies to reduce costs. Despite weakening downstream consumption demand and most suppliers transferring inventory for delivery in June, domestic spot inventory growth remained relatively limited. This was mainly due to the unabated increase in smelters' export ratios compared to May, amidst an open export window. After silver prices rose, downstream customers primarily picked up goods under long-term contracts, only making small purchases when prices were low or there was urgent demand. In late June, the spot-futures price spread widened again, and the premium for Shanghai's national standard silver TD rose, but most of it was purchased by traders. Downstream demand remained cautious, and overall spot market transactions were sluggish.

IV. Market Outlook

In summary, it is expected that silver prices will continue to reach new highs in June 2025, driven by safe-haven and speculative demand. Although there may be a correction in the short term due to profit-taking, the upward trend in silver prices remains unchanged in the medium and long-term. The enthusiasm of bulls/longs remains high, coupled with the need for the gold-silver ratio to correct, silver prices may continue to fluctuate upward in H2 and challenge new highs again.

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