Silver Surges on Perfect Storm of Policy, Supply Squeeze

Spot silver surged to $52.37 per ounce on Wednesday, nearing a record high, as global economic factors converged to drive the non-yielding metal's rally. The move followed a sharp decline in U.S. Treasury yields, which fueled demand for assets like silver that offer no yield but benefit from lower opportunity costs. Analysts attribute the uptrend to growing expectations of a Federal Reserve rate cut in December, with the CME FedWatch tool pricing in an 80% probability of a 25-basis-point reduction. This dovish outlook, combined with weaker U.S. labor market data, has positioned silver as a beneficiary of monetary easing.

The technical outlook for silver remains bullish, though traders face key resistance levels. Prices recently rebounded from $49.73, climbing over 2.5% to $51.37, with bulls targeting $52.46 and the October high of $54.46. However, a failed breakout above $52.50 and a double-top pattern suggest potential rangebound action, with support at $48.50–$49.50 acting as a critical level. The Relative Strength Index (RSI) supports further gains, but a drop below $51.00 could trigger a slide toward $50.00 and the 20-day moving average at $49.67.

Meanwhile, China's role in the silver market has introduced new risks. Inventories at Shanghai Futures Exchange warehouses hit their lowest level since 2015, while October exports surged to a record 660 tons, shipping to London to alleviate a global supply squeeze. This drawdown has pushed the Shanghai market into backwardation, with near-term prices trading above longer-dated contracts, signaling acute physical tightness. Zijie Wu of Jinrui Futures noted that the shortage could ease in two months, but the shift has amplified volatility. China's dwindling stockpiles, coupled with rising industrial demand for photovoltaic components and a tax policy shift that redirected some gold buyers to silver, have compounded supply pressures.

Geopolitical tensions and U.S.-China relations further complicated the outlook. The war in Ukraine and ongoing peace talks influenced safe-haven demand, while improved U.S.-China ties-highlighted by a call between President Trump and President Xi-reduced short-term risks to global trade flows. However, the Trump administration's potential tariff on silver, a critical mineral, remains a wildcard. A tariff could lock up U.S.-bound silver, exacerbating supply constraints in an already strained market.

Looking ahead, silver's trajectory will hinge on the Fed's December decision and incoming U.S. economic data. A rate cut would likely bolster the metal's appeal, while a failure to act could trigger renewed selling. For now, the interplay of monetary policy, supply shocks, and geopolitical dynamics has created a volatile environment, with prices poised to test key technical levels and react to shifting fundamentals.