Silver surged for a fourth straight day, as inflows into exchange-traded funds (ETFs), momentum-driven volatility, and tight physical markets pushed the metal toward its best year since 1979.

The precious metal rose to an all-time high above $64 an ounce on Friday morning, with prices fluctuating wildly. Silver has risen about 10% this week, supported by dovish signals from the Federal Reserve, which delivered an expected interest rate cut and showed signs of weakness in the US labor market. Lower interest rates are a boost for non-yielding precious metals like silver.

Most analysts say the scale of the increase is difficult to attribute to a single driver. Rising silver prices can sometimes trigger further gains, as retail investors and momentum traders gravitate towards the notoriously volatile metal.

This week's rally comes just two months after the London silver market suffered a sharp decline, as inflows into ETFs and exports to India eroded already low inventories. London warehouses have seen significant inflows since then, but most of the world's available silver remains in New York, as traders await the outcome of the US Section 232 investigation, which could lead to tariffs or trading restrictions on the metal.

"Until the lights come on, silver continues to experience increasingly risky price swings," wrote Daniel Ghali of TD Securities in a note on Thursday. "We expect no tariffs on silver to revive the liquidity dynamics that support sharp price declines."

The gold-silver ratio, sometimes used by traders to assess the relative price of the silver, fell to its lowest level since 2021 on Thursday, at about 1:67.

One indication of speculative enthusiasm is the level of call option buying, both on silver futures contracts and in ETFs that track the metal. Call options give buyers the ability to purchase a security at a predetermined price level and are a low-cost way to bet on price increases.

In the iShares Silver Trust, the largest silver ETF, total open interest in call options reached its highest level since 2020 this week. The cost of buying a call option relative to the cost of buying an equivalent put option, which protects against price declines, has also surged to its highest level in recent weeks.

Large options positions in SLV may have helped accelerate the rally. As of Thursday, there were more than 21,000 $57 call options expiring the following day, which could encourage dealers who had sold the contracts to buy shares to rebalance their positions.

Although the short-term price movement in silver has been "excessive," the long-term fundamental outlook remains positive, according to Carsten Fritsch, a commodities analyst at Commerzbank AG. Earlier this week, the Silver Institute—a trade body for the industry—released a report showing growing consumption for industrial applications, forecasting a sharp increase in demand for solar photovoltaics and electric vehicles.

Higher raw material prices tend to encourage manufacturers to seek efficiencies or substitutes. TD's Ghali argues that the dramatic surge in silver prices has dampened industrial demand, writing that the silver metal now accounts for about a quarter of the photovoltaic cost structure.

Silver prices have risen 120% this year, outpacing gold's 65% rise. The key to silver's recent rally is the influx of funds into ETFs, which have added 35 million ounces of silver in the past month, according to Bloomberg calculations.

Silver prices rose 0.8% to $64.05 an ounce as of 12:59 p.m. in London. Gold prices rose 1.1%. Platinum and palladium both rose. The Bloomberg Dollar Spot Index rose slightly. (alg)

Source: Bloomberg