(Kitco Commentary) - In today’s analysis, I’d like to focus on silver and its rally.
In short, it seems that two factors are in play at this time. The first one is fundamental.
Copper Tariffs: The Silver Supply Chain Connection
The announcement of 50% copper tariffs has created significant market volatility, but the broader implications for silver supply deserve closer examination. Approximately 70-80% of global silver production comes as a byproduct of mining other metals, with copper operations representing a significant portion of this supply (about 20%-25% of silver supply comes from copper mining).
This creates a complex dynamic for silver markets. While tariffs may initially appear supportive for domestic mining, the economic reality is more nuanced. Tariffs function as a tax on domestic consumers and importers, not a direct profit enhancement for mining companies, so it’s not an encouragement to increase production.
When copper becomes 50% more expensive for U.S. industrial users, demand typically contracts across copper-intensive sectors including construction, electronics, and automotive manufacturing.
This actually means lower demand for copper, ultimately leading to lower copper production.
This implies also lower silver supply coming from copper mining. Naturally, this is a long-term bullish factor for silver.
Is the market discounting this factor right now, and silver is rallying based on that? Will silver’s purchasing power increase further?
This could be the case, but I doubt that. The timing is suspiciously aligned with 2008 top – just as is platinum’s June surge and coper’s spike-high top.
The difference between now and 2008 is that back then, stocks were already declining – and miners were quite strong. Right now, miners are already weak:
We saw just a small breather in the last two days.
Fakeouts and Fundamentals: Can Silver Hold the Line?
The recent good performance of the stock market makes industrial metals’ good performance more realistic (even though it’s temporary). This means that silver had a good reason to move higher – more than during its mid-July 2008 top. This doesn’t change that the rally itself is likely just temporary.
Technically, and taken at face value, silver’s picture looks bullish. It verified its breakout above the previous highs, and it’s rallying today.
If he bullish scenario really plays out, silver could rally to $44.2 or even to $50 before declining again.
Why is this a big IF?
Because silver is known for fake breakouts, because gold is not breaking higher, because the timing is perfectly aligned with 2008 top, and because the USD Index pretty much confirmed its breakout.
Today’s close – if it happens above the declining resistance line – will finally confirm the breakout.
But looking at what’s going on in the world right now vs. what is happening in the USD Index makes it clear that the USD Index is about to rally.
I mean the increases in tariffs and the tariff-based uncertainty. Various developments about tariffs keep popping up, and yet the USD Index stands firm.
All in all, the current set-up suggests that silver is getting positioned to rally in the future much better than it was previously the case, but as far as the current rally is concerned, it seems that the rally might be reversed soon. It’s Friday, but we might have a “Silver Thursday” any day now.
Thank you for reading my today’s analysis – I appreciate that you took the time to dig deeper and that you read the entire piece. If you’d like to get more (and extra details not available to 99% investors), I invite you to stay updated with our free analyses - sign up for our free gold newsletter now.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief
