While gold prices have been consolidating since mid-April and failing to generate sustained upward momentum, the silver bulls have taken control of the silver market. The surge above USD 25 at the end of March provided the long-awaited breakthrough the downtrend line, which the silver bulls quickly capitalized on to break through the major resistance zone around USD 30, too. As a result, silver reached a new 12-year high at USD 32.50. Despite the pullback on Friday afternoon, the silver rally remains intact, with prices expected to reach around USD 35 in the coming weeks.
In recent weeks, silver prices staged an impressive surge, notably breaking through the long-standing resistance level around USD 30. However, even with prices above USD 30, silver is still trading significantly below its inflation-adjusted hypothetical peaks of around USD 70 in 2011 and approximately USD 152 in 1980, suggesting that it remains relatively undervalued.
Buyers in Shanghai continue to pay high premiums for gold and silver
Silver Premiums. Difference Silver Spot in percent USA & China, as of May 28th, 2024. Source: Pretiorates
In fact, silver is one of the few commodities still trading significantly below its historical highs from 1980. While many other commodities, such as oil, copper, or iron ore, have surpassed their record prices from 1980 in recent years, the silver price has stubbornly remained below its all-time high of around USD 50 per ounce from January 1980.
Even the peak of about USD 50 in April 2011 could not sustainably exceed this record value. In contrast, the prices for gold, platinum, and palladium have developed far beyond their 1980s highs in recent decades. Thus, in the grand scheme, silver still appears to have considerable catch-up and upward potential.
Physical demand from China is dictating silver prices
Fundamentally, the rising industrial demand, particularly from the photovoltaic industry, combined with the physical demand from China and India, is exerting immense pressure on the limited supply. Consequently, gold and silver prices are now being dictated by the Chinese market, as Chinese investors in Shanghai are still paying a premium of nearly 2% for physical gold.
Physical silver is even traded there with a premium of over 12.5%. This means that the manipulation on the COMEX and the Western commodity exchanges through uncovered paper silver has come to an end. As long as these high premiums persist in China, the upward trend in silver is likely to continue.
