Recently, the silver market has performed remarkably, with international silver prices repeatedly hitting new highs. As of December 1, the COMEX silver futures price reached a peak of $58.61 per ounce, while the SHFE silver main contract also set a historic high of 13,520 yuan/kg. Behind this round of silver bull market, multiple factors are reshaping the market landscape.
1. Macro Policy Expectations Lay the Foundation
Rising expectations for a US Fed interest rate cut are a key factor driving the precious metals bull market. According to the CME FedWatch Tool, the market probability of a 25-basis-point rate cut by the Fed in December has increased to 87%. Expectations of rate cuts have pushed down real interest rates, reducing the opportunity cost of holding non-yielding assets such as precious metals and thereby attracting capital inflows. Although gold also benefits from rate cut expectations, its short-term gains have lagged behind silver due to the lack of a physical scarcity narrative in its fundamentals.
2. Strong Support from Supply and Demand Fundamentals
Short-term silver ingot supply growth is constrained by raw material availability, while overheated investment demand and stable industrial rigid demand have led to a medium and long-term structural supply-demand gap for silver. Although expectations for a decline in PV end-use installation emerged at the end of November, and operating rates of intermediate processing enterprises such as silver nitrate and silver powder declined, domestic inventories continued to fall. In October, silver prices surged significantly amid multiple bullish factors, leading to a short squeeze. Although a record amount of silver flowed into the London market, alleviating the historic supply deficit, the issue of silver ingot shortages has not been fully resolved. The one-month silver lending rate remained at a high level of around 5% by the end of November.
3. Increasing Risks of a Short Squeeze
The international precious metals market is facing historic structural short squeeze pressure, particularly as the year-end delivery month approaches. Low inventories and tight physical liquidity in the silver market are jointly driving up prices. Data from major global exchanges show that December will see a significant YoY increase in COMEX deliveries, persistent spot premiums in the LBMA, and domestic inventories falling to a ten-year low. These factors collectively constitute the short-term drivers behind the current breakout in silver prices. A repeat of a short squeeze in the silver market by year-end cannot be ruled out, with short-term speculative fervor and ETF inflows further reinforcing the pattern of silver being more likely to rise than fall. Looking Ahead
Based on a comprehensive analysis, the current bull market in the silver market is driven by three key factors: macroeconomic policy expectations, supply-demand fundamentals, and changes in market structure. Unlike previous speculative-driven rallies, this round of price increases is supported by more solid fundamental factors. Against the backdrop of the US Fed starting an interest rate cut cycle, supply growth failing to match industrial demand growth, and inventories remaining low, silver prices are expected to continue fluctuating upward. However, the recent sharp rise in silver prices also warrants caution against high volatility risks, as market sentiment is susceptible to unexpected events. In mid-to-late December, attention should still be paid to whether social inventory ends its destocking trend after the delivery period.
