Silver Prices Reach Record High Amid Shortage

Silver prices have hit a record high of $51.22 per ounce in the London bullion market, driven by a global shortage. The shortage has also affected the Indian market, with several mutual funds stopping fresh lump sum subscriptions to their Silver ETF Fund of Fund. Experts say that the rising demand and limited supply are creating a structural bullishness for silver prices.

Silver prices have soared to an unprecedented high of $51.22 per ounce in the London bullion market, fueled by a global shortage. This surge has also impacted the Indian market, with several mutual funds halting fresh lump sum subscriptions to their Silver ETF Fund of Fund. The rising demand and limited supply are creating a structural bullishness for silver prices.

The London market witnessed silver prices surging towards all-time highs, with spot prices rising as much as 3.7% above $51 an ounce before paring some gains. The cost of borrowing the precious metal for one month in London reached an annualized record of 35%. This tightness in the London market has led to a collapse in the typical premium of a few cents for futures in New York, resulting in a discount of more than $2.50 an ounce below spot prices Historic silver squeeze deepens as prices soar in London market^[1].

The current market scenario has also prompted mutual funds to take precautionary measures. Following Kotak and UTI Mutual Funds, SBI Mutual Fund has temporarily suspended fresh subscriptions to its Silver ETF Fund of Fund from October 13. This suspension is due to the current market conditions and the need to safeguard investors’ interests. Redemptions, SIPs, and switch-outs will continue as per scheme terms After Kotak and UTI, SBI Mutual Fund halts silver ETF FoF subscriptions^[2].

Experts attribute the sharp rise in silver prices to global macroeconomic factors and increased investor interest in commodities. The limited availability of physical silver has constrained the creation of new units by ETFs at the indicative NAV (iNAV), leading to the suspension of subscriptions.

The 1980 record of $52.50 an ounce, set by the Hunt brothers' market manipulation, is now within reach. The current squeeze in the London market may ease as traders buy cheaper metal in the US and ship it to the UK to capture higher prices. However, for now, the squeeze is driving prices closer to this historical record.

Silver is up more than 70% this year, far outpacing gold’s advance, as investors seek security in the face of fiscal uncertainties in the US, concerns over an overheating equities market, and threats to the Federal Reserve’s independence.