Silver Extends Historic Rally Amid Global Supply Squeeze and Fed Rate Cut Expectations

Gerik

Summary:

Silver soared to a fresh record of $57.86 an ounce on Monday, driven by deepening global supply constraints and increased bets on a U.S. interest rate cut, outpacing gold with a doubling in price year-to-date....

Silver Surges to New Heights as Market Tightness Deepens

Silver continued its blistering rally at the start of December 2025, surging as high as $57.86 per ounce marking its sixth straight day of gains and cementing a year-to-date doubling in price. The white metal outpaced gold, which rose around 60% during the same period, highlighting silver’s newfound leadership in the precious metals complex.

This sustained upward momentum follows a near 6% spike on Friday and has been fueled by a combination of physical supply constraints, investor rotation away from gold, and intensifying speculative positioning.

Global Shortage Persists Despite London Inflows

One of the key drivers behind the surge is a lingering physical shortage in key trading hubs. Although a record inflow of silver entered London in October to ease the historic squeeze, this redistribution has drained supplies from other regions. Most notably, inventories on the Shanghai Futures Exchange have fallen to their lowest levels in nearly a decade, while the cost to borrow silver over one month remains elevated signaling persistent tightness in the global lending market.

According to Daniel Hynes of ANZ Group Holdings, the aftershocks of the London squeeze are still rippling through the system. Investors, observing gold's temporary consolidation, have increasingly turned their focus to silver as a catch-up trade.

Rate Cut Expectations Fuel Momentum in Non-Yielding Assets

Another powerful catalyst is rising market confidence in a December rate cut by the U.S. Federal Reserve. Following dovish remarks from Fed officials and delayed economic data caused by a prolonged government shutdown, traders are now fully pricing in a quarter-point reduction. Lower interest rates tend to benefit non-yielding assets like silver and gold, which do not offer coupon payments but gain appeal as the opportunity cost of holding them declines.

David Wilson of BNP Paribas noted that silver’s recent gains have been heavily speculative, with fast money flows chasing breakout momentum. He emphasized that the gold-silver ratio a key valuation metric has now tightened to around 70, suggesting that silver is becoming relatively expensive compared to gold. This ratio, which reflects how many ounces of silver are required to buy one ounce of gold, is closely watched for signals of overvaluation or mean-reversion potential.

Tariff Uncertainty and Strategic Mineral Status Add New Tailwind

In a development that may further amplify scarcity fears, silver was recently added to the U.S. Geological Survey’s list of critical minerals. This designation has raised speculation about potential U.S. import tariffs on silver, which could lead to price premiums domestically and discourage overseas shipments. While no policy action has been taken yet, the regulatory overhang is increasing hesitancy among traders to release physical stockpiles abroad.

This uncertainty compounds the existing supply tightness and may force more trading activity to remain within the U.S., reinforcing elevated domestic prices and limiting global market liquidity.

Investor Flows and Mining Stocks Reflect Growing Enthusiasm

Reflecting the bullish sentiment, physically backed silver exchange-traded funds (ETFs) saw accelerated inflows throughout November. Investors who took profits during the last price peak in October have returned aggressively, drawn by a mix of fundamental constraints and macro-driven tailwinds.

Mining equities have also benefited. In Australia, Sun Silver Ltd. jumped as much as 21%, Silver Mines Ltd. rose nearly 13%, and Hong Kong-listed China Silver Group gained 14% before trimming some of its advance. These moves suggest rising investor confidence in supply-side beneficiaries of the current rally.

Silver Enters 2026 With Unmatched Momentum

Silver’s record-setting performance is being driven by a powerful convergence of factors: global supply deficits, central bank policy expectations, and increased recognition of its strategic importance in clean energy and industry. As speculative money joins long-term institutional demand, the rally has become self-reinforcing, even amid fears of valuation excess.

With the gold-silver ratio approaching multi-year lows, and the threat of U.S. tariffs looming, the path forward for silver may be volatile but for now, the market’s appetite shows no signs of slowing. If the Fed confirms a rate cut in December, silver could enter 2026 not just as a hedge, but as a centerpiece of commodity portfolios.

Source: Bloomberg

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