China Buyers Drive Silver Prices Higher

July 5, 2016 at 09:00

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The price of silver surged to a two-year high on Monday as buyers in China made bold bets in the futures market and scooped up vast volumes of physical metal.

Spot silver, the price paid for immediate delivery, rose as much as 6.9% to an intraday peak of $21.132 a troy ounce, its highest value since July 2014, as the Shanghai-traded benchmark futures and physical silver contracts reached their limit.

On the Shanghai Futures Exchange, the most actively traded silver futures contract jumped for a fourth straight session on Monday, hitting its 6% daily maximum at opening to reach 4,419 yuan ($663) a kilogram.

Monday’s moves were buoyed by investors seeking haven assets and speculation about further monetary easing world-wide. The December contract for silver futures has rebounded 23% over the past month following a correction in May. It has gained 31% year-to-date.

“Silver has been chased after by investors as Brexit raised expectations over concerted efforts by global central banks to cut interest rates further,” said Sun Yonggang, an analyst at Shanghai-based Chaos Ternary Futures Co. Lower rates tend to increase the value of precious metals, making them more competitive with yield-bearing assets.

Trading in the December silver futures contract reached nearly 95 billion yuan on Friday—compared with 50 billion yuan in the session before—which was more than four times the daily transaction volume of a month ago, according to data provider Wind Information.

Silver has traditionally attracted more speculative bets than gold due to its lower cost, said Wang Jinyu, an analyst at Maike Futures Co.

The physical contract of silver on the Shanghai Gold Exchange also traded limit-up to 4,394 yuan a kilogram. It has rallied for four consecutive sessions since June 28.

The Shanghai Gold Exchange said if trading was one-sided during the last five minutes of the session, it would raise its current 8% daily limit for silver to 11% beginning Tuesday. It also said it would raise its margin requirement to 13% from 9% due to a “strong upswing of silver prices,” according to a statement Monday on the exchange’s website.

In the global spot market, the break above the closely watched level of $21 an ounce was brief and the metal retreated closer to $20 an ounce, which was 2.3% higher than late Friday and about 15% higher compared with a week earlier.

Silver has outperformed as both industrial and precious metals have climbed in tandem. The spot price of gold is up 3% compared with a week earlier, while copper futures traded on the London Metal Exchange are 5.5% higher.

“The metal continues to be buoyed by its unique position as both an industrial metal in risk-on conditions and a safe-haven asset in times of uncertainty,” said Sam Laughlin, a trader at precious metals company MKS Pamp Group.

About half of all silver purchased is used in industrial contexts and the rest is turned into bars, coins, silverware and jewelry.

Spot silver has risen more than 50% since posting a 5½-year low in December, when prices were dragged down by expectations of rising rates in the U.S. and a slowdown in China. Mr. Laughlin forecasts further swings ahead in the market which, he said, typically has a more “volatile nature” than metals such as gold.