Editor's Note: The article was updated to include comments from Maria Smirnova, Senior Portfolio Manager and Chief Investment Officer of Sprott Asset Management
(Kitco News) - After years of disappointment, renewed excitement is building in the silver market as prices rise solidly above $35 an ounce, reaching their highest level in 13 years.
Spot silver last traded at $35.76 an ounce and is up 8.7% so far this week—its best performance since early May—after prices bounced off initial support above $28.50 an ounce.
Jim Wyckoff, Senior Market Strategist at Kitco.com, said this breakout rally has been brewing for a while and may have more upside.
“Since gold scored a new record high of $3,485.60 an ounce, based on nearby Comex futures in April, I have maintained that silver appears to be a value-buying opportunity,” he said. “Right now, for silver, it’s very likely 'Katie, bar the door' to the upside.”
As for silver’s upside potential, many analysts continue to monitor the gold/silver ratio. While silver has significantly outperformed gold this week—with the ratio falling 5.5% to 94—the historical average is around 60.
Wyckoff added that there is solid potential for silver prices to test resistance at $40, with many analysts now eyeing the all-time record high of $50.36 an ounce set back in January 1980.
David Morrison, Senior Market Analyst at Trade Nation, noted that while silver’s breakout rally this week is exciting, it is not unexpected.
“This week’s moves are typical of silver. Like Mount Etna, it can go from dormant to live with no warning,” he said. “The question now is whether silver can build on these gains and go on to take out its record high of $50 from April 2011, or if it has already exhausted itself.”
Christopher Lewis, Market Strategist at FXEmpire, said in a note Thursday that the last two times silver broke through $35 an ounce, it made a run toward its $50 highs.
“Whether or not that happens this time remains to be seen, but clearly this is a market that’s very bullish. I have no interest whatsoever in trying to fight this type of trend,” he said.
While silver’s all-time high is still a ways off, commodity analysts at TD Securities said it is not an unrealistic target.
“Significant excitement is building in the metals complex, as it stages a coordinated breakout through key levels. After all, the last time silver broke $35/oz, it took less than ~6 weeks to reach $50/oz,” the analysts said in a note Monday.
TD Securities has been bullish on silver since mid-October, as they see robust industrial demand depleting above-ground stocks, which should eventually squeeze prices higher. This year, physical silver is expected to post its fourth consecutive annual supply deficit.
“London silver markets are increasingly offering only an illusion of liquidity. The LBMA's free-floating silver inventories continue to drain well below critical thresholds for market structure, driven by continued accumulation from physically backed ETFs and a shift in custodian vaulting patterns,” the analysts said. “A breakthrough above $35/oz should attract significant technical buying through this critically important range. If such flows are transacted through physically backed ETFs, this could increasingly challenge the market’s structure.”
However, TD Securities also warned investors to be cautious, as the rally in silver is currently being led by the futures market with limited participation in the broader marketplace, and specifically in silver-backed exchange-traded funds.
Maria Smirnova, Senior Portfolio Manager and Chief Investment Officer of Sprott Asset Management, in a comment to Kitco News, said that she is also watching this breakout as it has been led by Chinese demand or physical buying. However, she added, despite the shallow demand profile, this breakout is still significant.
“If the technical move catalyzes physical investor buying, it can take silver much higher very quickly. The silver market is thin, and it will not take much buying activity to send the price higher,” she said.
Smirnova added that despite any near-term volatility, the investment case in silver remains strong as deficits continue to grow.
“We have been talking for a while about the supply/demand deficits in silver, and since 2021, there has been a cumulative 800m oz draw, and the deficits are projected to continue,” she said.
According to the Silver Institute’s annual Silver Survey, the precious metal is expected to see a deficit of 117 million ounces in 2025, as demand falls slightly to 1.148 billion ounces while total supply increases by 1.5% due to rising mine output.
