China Stimulus Boosts Gold and Drives Silver Surge, but Risks Remain – Reuters

By Brijesh Patel

Silver prices have surged to their highest levels in over a decade, driven by a robust bull run in bullion and stimulus measures from China. However, some analysts caution that this rally might not last as concerns regarding industrial sector demand persist.

The price of spot silver reached $32.71 per ounce on Thursday, marking its peak since December 2012. The metal has experienced a gain of over 35% in 2024, leading the charge within the precious metals market.

This week, China’s central bank introduced its largest stimulus effort since the onset of the COVID-19 pandemic and is anticipated to cut its seven-day reverse repo rate. Additionally, the U.S. Federal Reserve recently lowered interest rates by half a percentage point.

"China’s stimulus is providing a boost to industrial metals, something that silver traders have been anticipating," noted Ole Hansen, head of commodity strategy at Saxo Bank.

Hansen further observed that ongoing strength in gold, along with stable to rising industrial metal prices, should enable silver to outperform gold. He predicted that the gold-silver ratio could fall back toward the range of 70 to 75, potentially leading to a 10% outperformance for silver.

The gold-silver ratio, which indicates how many ounces of silver are equivalent to one ounce of gold, serves as an important market indicator for assessing future trends in the performance of these metals.

Citi analyst Max Layton expressed optimism regarding silver prices, stating, "Interest rate cuts should provide a bullish impulse for global activity and support silver consumption. We anticipate prices rising to $35 over the next three months and reaching $38 within the next 6 to 12 months."

Macquarie also shared a positive outlook, forecasting ongoing silver market deficits over the next five years and emphasizing that investor flows, especially through ETFs, will likely play a crucial role in short-term price dynamics.

However, challenges could arise from the consolidation of China’s solar industry and a slowdown in growth within the world’s second-largest economy, potentially impacting silver demand in the near term.

Hamad Hussain, an assistant climate and commodities economist at Capital Economics, remarked, "The recent support measures from China may not be enough to significantly reverse economic growth, and traders might be overestimating the chances of another 50 basis point cut by the Fed in November."

As a result, he believes the recent rally in silver prices may not be sustainable over the coming months as some supportive factors for silver demand begin to diminish.

In China, industrial output growth slowed to a five-month low in August, highlighting a decline in domestic demand.

Carsten Menke, an analyst at Julius Baer, stated, "We believe that silver’s medium- to long-term performance is largely dependent on gold, rather than on specific dynamics within the silver market."