Silver hit a new record high and is on track for a second weekly gain as strong inflows into exchange-traded funds (ETFs) fueled a sharp rally.

The white metal rose as much as 3.9% on Friday to a new record of $59.33 an ounce. Total additions to silver-backed ETFs in the four days through Thursday reached their highest level for any full week since July, a strong signal of investor interest despite signs that silver's rally may be overdone.

"These inflows could quickly amplify the price action and trigger a short-term short squeeze," said Dilin Wu, research strategist at Pepperstone Group Ltd. For most of the week, the metal's 14-day relative strength index has fluctuated between 70 and 70—the threshold at which traders would likely consider the metal overbought.

Silver prices have roughly doubled this year, outpacing gold's 60% rise. The rally has accelerated in the past two months, thanks in part to historic pressure in London. While that pressure has eased in recent weeks as more metal is shipped to the world's largest silver trading hub, other markets are now experiencing supply constraints. Chinese inventories are nearing their lowest level in a decade.

"Silver's massive rally signals that it's no longer a quiet sidecar for gold," said Hebe Chen, an analyst at Vantage Markets in Melbourne. "The market is starting to recognize structural shortages and rapidly rising industrial demand, not just a safe haven story."

The metal's recent surge is also supported by growing expectations that the Federal Reserve will cut interest rates at its meeting next week. Swap contracts indicate near certainty that the Fed will reduce borrowing costs—usually a positive for non-yielding precious metals. These bets are sustained by the latest U.S. employment data, which showed jobless claims falling to a three-year low.

Silver could rise to $62 an ounce in the next three months "supported by the Fed's rate cut, strong investment demand, and the physical deficit," Citigroup Inc. analysts including Max Layton wrote in a note.

Silver is not only valued as an investment asset, but also possesses many useful real-world properties that make it a component in a variety of products, such as circuit boards, solar panels, and coatings for medical devices. Global demand for this metal has outpaced mining production for five consecutive years.

Silver rose 3.1% to $58.90 an ounce as of 10:53 a.m. in New York. Prices are up more than 4.5% for the week, following a 13% surge last week. Gold rose 0.9% to $4,243.84 an ounce, while platinum and palladium also rose. The Bloomberg Dollar Spot Index edged down 0.2%. (alg)

Source: Bloomberg