Silver Hits New Record High After US Jobs Data

Silver prices reached a historic high on Wednesday, surging to a new record of $66.50 an ounce. This surge caps an exceptional rally, with the metal's price climbing by more than 130% since the beginning of the year.

US jobs data drove investors toward safe-haven assets, while supply constraints and strong industrial demand continued to support prices in the long term.

Economic Data Drives Safe-Haven Assets

The US jobs report released on Tuesday was the direct driver of this historic jump. Despite the US economy adding 64,000 new jobs in November, the unemployment rate rose to 4.6%, its highest level since September 2021.

This rise in the unemployment rate is seen in the markets as an indicator of slowing economic activity. Average hourly earnings also declined by 0.3% to 0.1%.

Consequently, the weak jobs data reinforced investors' expectations that the Federal Reserve may be forced to take further easing measures to support the economy.

Markets are pricing in a roughly 75% probability that the Federal Reserve will keep interest rates unchanged at its January meeting, with little to no change from pre-report levels.

Why is the current performance outperforming previous cycles?

The current rally is not simply a short-term reaction to economic data. The current situation is more complex than any previous cycle for the metal, underpinned by structural factors that render the market readings by past standards inaccurate.

The most important of these factors are:

- A severe supply crisis: The silver market faces a persistent deficit. Approximately 25,000 tons of silver are produced globally each year, most of which is a by-product of mining other metals such as copper and lead.

This nature of the supply chain has made the response to rising prices sluggish, and the crisis has been exacerbated by declining inventories in major global storage hubs like London.

- Unprecedented industrial demand: The current landscape is radically different from that of the 1980s due to the enormous demand from modern technology sectors. Silver is used extensively in:

• Solar panels (solar power)

• Electric vehicles (where its use can reach up to one kilogram per vehicle as batteries develop)

• Artificial intelligence components and data centers

- Geopolitical and trade factors: Trade tensions and rising tariffs exacerbate the sensitivity of supply chains, as these concerns prompt importers to expedite shipments, further straining available stocks.

What could trigger some downward corrections for silver?

- Upcoming inflation data: The market is anxiously awaiting the November Consumer Price Index (CPI) report, due on Thursday, and the Personal Consumption Expenditures (PCE) report on Friday. Any data showing continued high inflation could delay expectations of an interest rate cut and put downward pressure on silver prices.

- Central bank policy shifts: Any shift towards a more hawkish stance from the Federal Reserve could support the dollar and reduce the appeal of the precious metal.

- Profit-taking: Reaching psychologically high levels could trigger profit-taking by traders, causing corrective pullbacks.

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