Increasing demand from the industrial sector is creating a tight supply situation for silver.
Spot silver prices hit a new record high in early-morning trade on Dec. 1, while gold also rose amid the possibility of interest rate cuts in December.
Silver hit a high of $57.87 per ounce on Dec. 1 and was trading at $57.43 as of 7:10 a.m. ET, up by 1.82 percent from close on Nov. 28. Spot gold was trading at $4,250.62 per ounce, up by 0.47 percent. Contrasting the precious metal gains, Bitcoin prices dropped by 5.36 percent to $86,015.
In October, the Federal Reserve cut its benchmark interest rate for the second straight meeting, lowering it to a range of 3.75 to 4 percent. According to FedWatch data, the majority of interest rate traders expect a 25-point rate cut at the Fed’s final meeting of the year, scheduled for Dec. 9 to 10.
Precious metals such as silver and gold are generally more attractive to investors during rate-cutting periods.
However, Fed Chair Jerome Powell said after the October meeting that the third straight rate cut in December was not exactly a guarantee.
“There were strongly different views about how to proceed in December,” he said. “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”
Powell’s term is set to end in May. Treasury Secretary Scott Bessent recently suggested that President Donald Trump could announce his pick of a replacement before Christmas.
On Nov. 30, Trump told reporters aboard Air Force One that he has already decided who will replace Powell. When asked whether it was National Economic Council Director Keven Hassett, the president replied, “I’m not going to tell you; we’ll be announcing it.”
The more compelling bullish case for silver lies with increasing industrial demand and limited scope to boost mined output, creating a tight supply situation.
The market deficit for silver, as calculated by the London Stock Exchange Group, or LSEG, was 501.4 million ounces in 2024, up sharply from 19.4 million in 2023.
The majority of mined silver is produced as a byproduct of other metals, such as copper, lead, zinc, and gold. This means supply gains are largely dependent on the supply-and-demand economics for those metals, rather than on silver’s fundamental outlook.
Silver supply may well increase in the coming years, given positive sentiment toward copper and gold, but expanding output from existing mines or developing new projects is a lengthy process and may take some time to materialize.
