Silver prices hit a record high, influenced by interest rate cut expectations and supply tightness

Under the dual impetus of tightening global supply and expectations of loose monetary policy, silver is becoming the new focus of the commodity market, with its price soaring to historic highs. This strong momentum not only reflects the overall optimism in the precious metals market but also highlights the specific supply-demand imbalance issues related to silver.

On Monday, December 1st, the spot silver price broke through $57 per ounce for the first time in history, rising about 1% during the day. Meanwhile, silver futures on the New York Mercantile Exchange also reached a new high of $57.81 per ounce. The rapid rise in prices is directly attributed to deep market concerns over supply shortages and traders' widespread bets on the imminent interest rate cuts by the U.S. Federal Reserve.

Recent developments show that China's silver inventory has fallen to its lowest level in seven years, directly related to record export volumes in October. Analysts point out that this massive inventory depletion is triggered by cross-border tariff arbitrage activities, exacerbating the supply tightness in the global market.

For investors, the breakthrough in silver prices is not an isolated event. It is both a reflection of the overall strength in the precious metals sector under expectations of a dovish turn by the Federal Reserve and resonates with the supply bottlenecks faced by industrial metals like copper. This series of signals suggests that the supply-driven price increase story may unfold in a broader commodity market.

Surge in Chinese Exports, Inventory at Low Levels

One of the core driving forces behind the current rise in silver prices is the significant supply-demand changes in the Chinese market. ING analysts Warren Patterson and Ewa Manthey point out that a recent supply tightness once pushed silver prices to historic highs, with the surge in China's exports being a key triggering factor. Data shows that China's silver exports in October exceeded 660 tons, setting a historical record.

Behind the surge in exports is cross-border tariff arbitrage activities. According to Jiemian News, due to concerns over potential tariffs leading to increased costs, traders have been moving silver and other commodities from warehouses in London to New York in advance to lock in price differences between the two locations. This behavior has directly led to a sharp depletion of domestic inventories in China. Wind data shows that during the week of November 24th, the silver inventory on the Shanghai Gold Exchange fell to 715.875 tons, the lowest level since July 2016, although it has since seen a slight rebound, it remains at nearly a decade low.

Zhou Ji, senior director of Nanhua Futures Research Institute, told Jiemian News: “Domestic silver and non-ferrous metal trading will be influenced to some extent by the transfer of overseas inventories to the U.S., and the impact is bidirectional, mainly reflected in prices and arbitrage activities.”

Rate Cut Expectations Boost Precious Metals Market

Macroeconomic expectations of monetary easing provide solid support for silver and the entire precious metals market. Traders widely bet that the Federal Reserve will announce interest rate cuts at its December meeting, enhancing the attractiveness of non-yielding assets like silver. Soojin Kim of Mitsubishi UFJ Financial Group (MUFG) noted that although gold futures prices have slightly declined, they remain at high levels, reflecting the market's general expectations Recent dovish remarks from Federal Reserve officials have reinforced this expectation. Federal Reserve Governor Christopher Waller stated that the weakness in the labor market has provided justification for another rate cut in December. New York Fed President John Williams also believes there is still room for further rate cuts.

Additionally, according to media reports, Kevin Hassett, a senior economic advisor to President Trump who is considered to hold a dovish stance, has become a popular candidate for the next Federal Reserve Chair, further boosting market confidence in a future low-interest-rate environment. Analysts at ANZ Research stated in a report that lower interest rates are favorable for precious metals such as gold.

Supply Shortages May Drive Up Copper Prices

The theme of supply tightness is also fermenting in the industrial metals market, especially copper. Eun Young Lee, an analyst at DBS Group Research, stated in a report that the worsening copper supply shortage could drive prices higher. The bank predicts that due to a supply gap that may expand to 316,000 tons by next year, the average price of copper in 2026 could rise by 3.1% to USD 9,900 per ton.

Copper demand is continuously driven by investments in data centers and power grids, while the supply side is constrained by production disruptions in mines and declining ore grades.

Signs of supply tightness have already emerged in commercial negotiations, with ANZ analysts noting that Chilean copper producer Codelco is seeking to significantly increase the premium on its 2026 annual contracts from this year's USD 89 per ton to USD 350. In this context, DBS believes that Chinese copper mining companies may benefit and has listed Zijin Mining and MMG as preferred investment targets