The Chicago Mercantile Exchange trading interruption exacerbates market volatility, with silver and copper prices reaching historic highs

Driven by strong fundamentals and expectations of interest rate cuts by the Federal Reserve, silver and copper prices soared to historic highs during turbulent trading on Friday, while a rare technical failure at the Chicago Mercantile Exchange exacerbated market volatility.

On Friday, the Chicago Mercantile Exchange experienced a data center cooling system failure, causing a disruption in its global derivatives market trading for several hours. With the U.S. Thanksgiving holiday leading to already thin trading, the interruption further amplified price fluctuations, causing the bid-ask spread for precious metals to spike at one point.

As most trading operations at the Chicago Mercantile Exchange resumed early in the morning Eastern Time, futures on the London Metal Exchange continued to rise.

Silver prices surged by as much as 5.9% during the session to $56.53 per ounce, setting a new historical record. Copper prices also reached new highs, with LME copper futures earlier hitting a record of $11,210.50 per ton.

(Silver prices surged by as much as 5.9% during the session)

The market generally believes that the current precious metals market is in a "perfect storm" characterized by supply shortages, improved macro prospects, and potential trade policies.

Silver: Supply Tightness and Tariff Concerns Intertwined

Wallstreetcn previously mentioned that the direct reason for the rise in silver prices is the growing market concern over supply.

Unlike gold, a significant portion of silver demand comes from industrial sectors, such as photovoltaic cells and electronics. This strong physical demand provides a solid foundation for prices.

Last month, severe supply tightness in the London market pushed prices to historic highs, and although nearly 54 million ounces of silver flowed in afterward to ease the squeeze, the market remains significantly tight, with the one-month borrowing cost of silver still hovering above normal levels.

Analysts believe that these metals flowing into London are, in turn, putting pressure on other trading centers, including China. Data from the Shanghai Futures Exchange shows that silver inventories in its warehouses have recently fallen to their lowest levels since 2015.

Analysts at Commerzbank wrote in a report on Friday:

In the short term, if registered silver inventories in China continue to decline, the possibility of further price increases cannot be ruled out.

Additionally, potential tariff risks have also become a focus of traders' attention.

This month, silver was included in the U.S. Geological Survey's list of critical minerals, raising market concerns about potential tariffs that may be imposed in the future.

Despite 75 million ounces of silver leaving the New York Mercantile Exchange vaults since early October, fears of a sudden premium for U.S. silver have led some traders to hesitate in exporting the metal abroad.

Copper Market: Bullish Sentiment Heats Up After Industry Conference

Wallstreetcn reported that the latest rise in copper prices occurred after miners, smelters, and traders met in Shanghai this week, focusing on the tightening market Energy trader Mercuria Energy Group's prominent metals chief Kostas Bintas reiterated his bullish forecast, warning that the surge in metal shipments to the U.S. could deplete inventories in other parts of the world.

In an interview with the media at the conclusion of the industry conference organized by the Copper and Copper Mine Research Center (CESCO), he stated:

This will be a big problem; if the world continues like this, there will be no copper inventory left in other parts of the world.

In recent weeks, traders have been ramping up copper shipments to the U.S. to take advantage of the significant premium on metals at the New York Mercantile Exchange, driven by uncertainties over potential future tariffs.

Natalie Scott-Gray, senior metals analyst at StoneX Financial, remarked:

The price surge on Friday was a response to the bullish sentiment coming out of the CESCO Shanghai conference.

She added:

This is happening against the backdrop of a perfect storm bull narrative we have been building for the end of the year.

Macroeconomic Tailwinds and Speculative Waves Fueling the Rally

In addition to their respective fundamental factors, macroeconomic tailwinds have also provided strong momentum for metal prices.

Market expectations for further monetary easing by the Federal Reserve this month are heating up, seen as key to driving growth and demand in the world's largest economy.

According to data from the CME FedWatch Tool, the market now estimates an 86.4% probability that the Federal Reserve will cut interest rates by 25 basis points at its meeting on December 10, significantly up from 71% a week ago.

More broadly, this year's surge in metals also reflects a wave of investment known as "devaluation trades."

Since the beginning of the year, silver prices have soared over 90%, partly due to investors fleeing government bonds and currencies while flocking to alternative assets. Ultima Markets analyst Elon Gu stated:

From a technical perspective, silver prices found support at the 50-day simple moving average during the recent pullback, which is a key technical indicator of sustained bullish sentiment, indicating that the market's upward momentum remains solid