Silver Pulls Back From Record After Historic Rally Above $80
(Bloomberg) -- Silver retreated sharply after smashing through $80 an ounce for the first time, halting a record-breaking rally powered by Chinese speculative demand.
The white metal fell by more than 6% as it took a roller-coaster ride Monday after earlier hitting $84 an ounce. Surging Chinese investment demand has pulled the metal higher, with premiums for spot silver in Shanghai rising above $8 an ounce over London prices, the biggest spread on record.
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The blistering rally has provoked extreme measures in China’s investment landscape, with the country’s only pure-play silver fund turning away new customers after its repeated risk warnings went unheeded. The fund’s manager announced the unusual step Friday after multiple actions — from tighter trading rules to cautionary advice about “unsustainable” gains — failed to quell an eruption of interest fueled by social media.
UBS SDIC Fund Management Co. had become increasingly concerned that investors could be exposed to heavy losses should the bull market suddenly turn. The fund’s premium ballooned last week to more than 60% over the value of its underlying assets — silver contracts on the Shanghai Futures Exchange.
During the weekend, Elon Musk highlighted the growing investor frenzy around precious metals, replying to a tweet on Chinese export restrictions by saying on X: “This is not good. Silver is needed in many industrial processes.”
Indeed, unlike gold, silver is a valuable component in a range of products, particularly in solar photovoltaics. With inventories near their lowest on record, there’s a risk of supply shortages that could affect multiple industries.
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The Chinese measures are effectively a rollover of previous policies and were first announced by the Ministry of Commerce on Oct. 30. Although the country ranks among the top three global producers of silver — largely as a byproduct of industrial metals — it’s also the world’s largest consumer and therefore not a major exporter.
“The speculative atmosphere is very strong,” said Wang Yanqing, an analyst with China Futures Ltd. “There’s hype around tight spot supply, and it’s a bit extreme now.”
Some exchanges are moving to rein in risk. The margins for some Comex silver futures contracts will be raised from Monday, according to a statement from CME Group Inc. — a move that Wang said would help reduce speculation.
Last week’s rally came just two months after the London silver market suffered a full-blown squeeze as flows into exchange traded funds and exports to India eroded inventories that were already critically low. London’s vaults have seen significant inflows since then, but much of the world’s available silver remains in New York as traders wait for the outcome of a US probe that could lead to tariffs or other trade restrictions.
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