Silver Retreated After a Rapid Rise This Week, Up 3.29%; Futures Remained Firm and Spot Discounts Widened [SMM Silver Weekly Review]

[Silver Price Review and Forecast]

This week, SMM 1# silver prices retreated after a rapid rise. They extended their rebound early in the week, hit a high of 16,123.5 yuan/kg mid-week and then pulled back, and stabilized and consolidated late in the week, with a cumulative weekly gain of about 3.29%.

On the macro front, early in the week, US July nonfarm payrolls unexpectedly turned negative for the first time since February; coupled with a weaker US dollar, gold surged $100 to a seven-week high, and silver followed with a 3.36% gain. The central bank increased its gold holdings for the 21st consecutive month, providing long-term support, but the rate-hike trend had not yet reversed and repeated US-Iran conflicts capped upside room. Mid-week, the Bank of Japan signaled a September rate hike and helped prompt joint US-Japan intervention in the yen; the US dollar came under pressure, the CME rate-hike probability fell to 51.2%, and silver touched its intraweek high. The rally was driven by financial attributes such as short covering, ETF inflows and central bank gold buying. On Wednesday, uncertainty over US-Iran negotiations persisted; oil prices pulled back but escalation risks remained, and silver lacked sufficient breakout momentum. On Thursday, US July CPI rose 3.4% YoY, in line with expectations; inflation continued to slow, rate-hike bets were trimmed slightly, and silver consolidated in the short term.

In the spot market, this week as a whole showed a divergence pattern of "strong futures, weak spot". The continued rise in silver prices kept suppressing downstream industrial demand; buyers held a strong wait-and-see sentiment, and overall trading was sluggish. In Shanghai, premiums/discounts against TD gradually moved from parity at the start of the week to TD -10 to 0 yuan/kg, with transactions increasingly leaning toward discounts. Traders lowered offer prices as the spot-futures price spread narrowed; some suppliers sold at concessions. Reduced purchases by banks weakened floor support, and only a small amount of acceptance-driven demand was transacted on a need basis. In Shenzhen, national-standard supply was concentrated around a small discount to parity, with both buyers and sellers cautious. Spot demand remained weak throughout the week; the center of transaction prices continued to move lower, and premiums/discounts gradually shifted into discounts.

Outlook: This round of silver gains was driven mainly by the pullback in oil prices on expectations of US-Iran peace talks and by the unexpected negative turn in nonfarm payrolls, while rate-hike expectations cooled for the time being. However, the overall rate-hike direction has not changed, CPI data was broadly in line with expectations, and market sentiment cooled; short-term upward momentum is insufficient, and silver is expected to mainly move sideways in a narrow range. In the medium and long term, continued central bank gold buying will keep providing a floor; as the rate-hike path and the US-Iran situation gradually become clearer, expectations for higher silver prices from late Q3 to Q4 will strengthen.

Next week's price range: SGE futures are expected to see a low of 14,500 yuan/kg and a high of 16,500 yuan/kg; LBMA futures are expected to see a low of $58/oz and a high of $68/oz. On spot premiums/discounts, market quotes against TD are expected to run around a small discount to parity. This week, the SMM silver ingot Hong Kong spot premium against LBMA closed at a discount of $0.3 to $0.1/oz; export quotes were raised slightly, and buying interest recovered modestly.

[Silver Weekly Data Comments]

On the weekly inventory side, as of August 13, SMM total social inventory stood at 3,699 mt, an inventory buildup of 74 mt from the previous period. Warrants continued to accumulate from last Friday to early this week, mainly because the spot-futures price spread stayed in a wide range, making it difficult for traders to sell, compounded by persistently weak spot market demand. On Thursday, the spot-futures price spread narrowed somewhat, and selling sentiment improved slightly. Roll profits over the past two weeks were thin, making roll operations essentially impossible. On the international market, LBMA and COMEX inventories both extended their buildup trend.

As of August 12, silver ETF holdings stood at 15,313 mt, up 1.09% WoW and up 2.18% MoM; the rise in silver prices drove modest inflows. The LBMA gold/silver ratio recorded 67, consolidating lower; silver showed relatively high elasticity in this rally.