The international silver price has surpassed $40 per ounce for the first time in 14 years. The expectation that the U.S. Central Bank (Federal Reserve) will lower interest rates this month has strengthened the preference for safe assets, sweeping through the market. Additionally, the increase in industrial demand and the possibility of the U.S. designating it as a 'critical mineral' have fueled the silver price rally.
According to Bloomberg, on the 1st (local time), the silver spot price surged by 1.4% at one point during the trading session, recording $40.2920 per ounce. This is the first time since September 2011. The silver price has risen more than 40% this year alone. Other precious metals, including gold, platinum, and palladium, also showed a supportive rally. The gold spot price rose by 0.7% on the same day, nearing the all-time high recorded in April.
The main driving force behind this precious metal rally is the expectation of a shift in Federal Reserve monetary policy. Investors are viewing the possibility of the Fed lowering interest rates at the upcoming Federal Open Market Committee (FOMC) meeting this month as high. According to the CME FedWatch, experts are estimating the likelihood of a 25 basis point (1 basis point = 0.01 percentage points) rate cut at 87%.
When interest rates decline, the investment appeal of real assets such as precious metals relatively increases. Geopolitical tensions and uncertainty in the financial markets have also spurred demand for precious metals, which are categorized as safe assets. In particular, there are analyses suggesting that U.S. President Donald Trump's continued remarks undermining the independence of the Federal Reserve have heightened uncertainty.
In particular, silver is not only a traditional safe asset but also an essential raw material for clean energy technologies such as solar panels. According to the Silver Institute, the silver market is expected to experience a supply shortage for five consecutive years up to this year.
In this context, the explosive increase in investment demand has further fueled the rise in silver prices. There has been a net inflow of funds into silver exchange-traded funds (ETFs) for seven consecutive months until August, marking the longest inflow since 2020. As investors have been purchasing large amounts of silver through ETFs, the inventory in the London physical market has decreased, worsening the supply shortage.
Recently, U.S. government policy has emerged as a new upward force. The U.S. Geological Survey (USGS) has recently proposed adding silver to the draft list of 'Critical Minerals' for 2025. Critical minerals refer to resources essential for the U.S. economy and national security.
Citigroup analyzed that this could be preliminary work for the U.S. to impose high tariffs under Section 232 of the Trade Expansion Act. The U.S. relies on imports for 64% of its silver needs, so if tariffs are imposed, prices could surge. Based on this analysis, Citigroup maintained a bullish outlook, predicting that silver prices could reach $43 per ounce within 6 to 12 months.