Silver just hit its highest price in more than a decade, and growing demand and falling interest rates mean it could have more room to run.
On Thursday, silver hit $32.43 an ounce, its highest price since 2012. The metal is up 35% so far this year. That beats a 30% rally for gold, which has been trading at all-time highs.
Both silver and gold have benefitted from the Federal Reserve’s shifting stance on interest rates—with policy makers lowering rates earlier this month for the first time in four years. The Fed isn’t the only central bank taking action: On Wednesday, the People’s Bank of China announced its own rate cut, which helped fuel a broad rally that included metals as well as stocks Thursday morning.
While investors frequently buy gold and silver as safe-haven assets, they don’t offer any yields like Treasuries and other types of bonds. As a result, when yields decline, metals become comparatively more attractive.
Investors expect the Fed to continue cutting rates well into 2025. Futures market data suggest the federal-funds rate will hit 3.25% or below next September, down from 5.25% to 5.5% before the Fed’s half-point cut earlier this month.
One caveat for silver bulls: Investors have been expecting rate cuts all year. Given silver’s strong performance year to date, at least some gains from future rate cuts are likely baked into today’s prices.
Still, silver also stands to benefit from other tailwinds, including increasing demand. The commodity plays a significant role in the global economy’s transition to green energy, as a key component in solar panels and electric car batteries.
The Silver Institute, a trade group, forecasts industrial demand for silver will increase about 9% this year.
The market for silver is especially strong in China, says Citigroup, which estimates silver demand has increased 20% year over year in recent months, largely driven by production of electric vehicles, solar panels, and other electronics.
“China fundamental demand is booming,” wrote Citi analysts Maximilian Layton and Viswanathrao Kintali in a recent note.
One source of demand that hasn’t picked up yet—but could if prices remain elevated—is from U.S. investors. Investor flows into the iShares Silver TrustSLV+0.62% exchange-traded fund were negative for most of 2024, before ticking up sharply in the past three months when $770 million rushed into the $14 billion fund.
Still, the vast majority of the recent inflows came on just two days. That suggests bulk-buying by hedge fund traders, rather than small investors who tend to trickle in money over time. When it comes to silver, individual investors may just be starting to pay attention.
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