While gold has been grabbing all the headlines with its recent surge to a record high of $3,045 per ounce, its more modest cousin, silver, has been quietly outperforming, climbing 17% so far this year to $34 per ounce.
The market has been increasingly concerned about the impact of President Donald Trump’s tariffs on the silver market. This is not the first time that silver has been overlooked by the market. Often referred to as “poor man’s gold,” silver has traditionally traded at a significantly lower price than gold, despite its diverse applications and similar role as a safe-haven asset. Nonetheless, silver tends to move in tandem with gold, and its moves are often amplified due to its smaller market size.
However, this trend has not played out since gold embarked on its historic rally in 2022. Interestingly, silver has underperformed despite the bullish environment for gold. Commodity strategists attribute this anomaly to the changing geopolitical landscape over the past three years, as central banks have ramped up their gold purchases to record levels to diversify their reserves away from the US dollar.
According to ANZ Bank, while this key source of demand is absent in the silver market, the grey metal will start to catch up with gold as investors seek cheaper alternatives to gold as a safe haven amid soaring gold prices. “We think silver presents an opportunity for investors who missed the gold rally and want to benefit from rising gold prices,” said Soni Kumari, ANZ’s commodity strategist. “Silver’s relatively low value compared to gold could attract investor interest.”
Gold and Silver Price Volatility.
The physical silver market is also facing tensions amid President Donald Trump’s escalating trade war, as the US imports 70% of its silver from Canada and Mexico, the two main targets of Trump’s tariffs. While Ottawa has retaliated by announcing a 25% tariff on C$30 billion ($32.9 billion) worth of US-made goods, including silver, investors are bracing for Washington to unleash a new wave of tariffs on April 2.
US traders have been trying to circumvent the upcoming tariffs by front-running silver purchases, driving up the price spread between New York futures and London spot prices to $1 per ounce, significantly higher than the 50-cent spread during the COVID-19 pandemic. Investors are taking advantage of this price spread through arbitrage, withdrawing silver from London and transferring it to US warehouses to benefit from the higher price in New York.
This dynamic is also playing out in the copper market, where New York prices are trading at an 11% premium to London prices. “The market may be underestimating the scale and impact of the upcoming US tariffs on commodity prices (mostly upward), and we advise clients to hedge or accept these risks via silver,” said Max Layton, global head of commodity research at Citi.
The rush to withdraw silver from the LBMA has caused the one-month silver lease rate – the cost of borrowing the metal – to soar above 6% on the exchange, reflecting concerns about rapidly dwindling inventories in London. This has also raised fears that the London market could tighten trading conditions, as the net short positions in silver held by swap dealers, typically banks hedging against physical gold, are at their highest since 2020.
Tightening of commodity sales occurs when speculators are forced to defend their bets on a commodity by entering the market as buyers to balance their positions when the commodity’s price moves against them. ANZ’s Kumari said, “We believe these dynamics will make silver prices prone to spikes if the short positions are covered.”
ANZ believes that investment demand will be key to silver catching up with gold’s prolonged rally over the past two years. While the number of net long positions in silver is increasing significantly, ANZ notes that arbitrage trading is often unstable and subject to market sentiment shifts. Investment in silver ETFs has been modest so far, with inflows of 16 million ounces in 2024 and outflows of 9.8 million ounces since the beginning of 2025. ANZ expects silver ETF holdings to rise to 45 million ounces by the end of the year.
Reference: Afr
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