Silver prices tail off after hitting first record in four decades
Silver prices retreated on Tuesday after hitting their first all-time high in over 45 years, as supply fears and a short squeeze added momentum to a year-long rally spurred by investor fears over government debt levels and sticky inflation.
On a historic day of trading, spot prices for the precious metal broke $53 an ounce after a months-long rally culminated in a vicious short squeeze that forced several investors to buy into the market at already elevated prices.
The frenzy was especially intense in London where a supply shortage afflicting the City’s flagship metal exchange and bullion market drove prices even higher.
The spread between silver bars traded in New York and London reached as much as $3 last week, and became so acute that some traders sought to cargo the bars from New York on planes – a mode of transport usually reserved for gold.
Spreads and the spot price died down after news of the arbitrage emerged. But the spurt meant silver had already soared past an all-time high that had stood since 1980, when the billionaire Hunt brothers attempted to corner the market, triggering an enormous jump in prices that was quickly followed by an abrupt crash.
“Silver is living up to its reputation as gold’s unruly younger sibling,” said David Morrison, senior market analyst at Trade Nation. “It soared overnight to hit a fresh all-time intraday high. But it too hit a wall of sell orders as Europe opened. Silver hit $53.60 but then lost $3 in an hour or so… volatility is up, market spreads are widening and volumes thinning.”
Along with gold and platinum, silver is one of the best performing assets this year, up more than 75 per cent as investors flock to alternative stores of value amid fears of a looming stock market correction, ballooning sovereign debt levels and muddy monetary policymaking.
The pattern – dubbed the debasement trade – has taken on fresh momentum in recent weeks, with gold pushing past $4,100 on Monday and platinum being carried to a gain of nearly 82 per cent for the year to date.
“Gold has led the way as a store of value, but we’re now seeing fundamental support for a broader range of metals,” said Iain Pyle, senior investment director at Aberdeen. “Silver… and platinum have all moved up markedly in recent months – to date at least. We see a structural deficit forming,” said Silver and platinum have both outpaced gold year-to-date, yet their supply remains largely inelastic.”