Silver prices have risen sharply, climbing from $50 to over $54 per troy ounce since the beginning of the week. This increase is faster than Gold’s movement, causing the Gold/Silver ratio to drop to its lowest point this year at just above 77. This surge in Silver is driven by expectations of upcoming interest rate cuts from the US Federal Reserve. Additionally, Silver stockpiles on the Shanghai Futures Exchange and the Shanghai Gold Exchange are at their lowest levels in 10 and over nine years, respectively. In October, China exported a record 660 tons of Silver, mainly to London, leading to shifts in the market due to earlier shortages. If deliveries return to China, it would further tighten supply outside the country. Silver ETFs have seen inflows exceeding 3,500 tons this year, limiting market supply. Recently, there was an additional 290 tons of inflow, which has affected market availability and contributed to the rising prices. With Silver now above $54 an ounce, we see strong bullish momentum. This is coinciding with expectations of a US Federal Reserve interest rate cut in early December. The anticipated looser monetary policy makes non-yielding assets like Silver more appealing. This positive sentiment is visible in the futures market. The latest Commitment of Traders report shows large speculators have notably increased their net-long positions, indicating confidence in further price increases. Traders might want to be cautious about taking short positions against this strong trend. The physical market is experiencing real tightness, with inventories in Shanghai reaching decade lows. This strong demand supports prices, potentially limiting any downturn. For derivative traders, strategies such as selling out-of-the-money puts could be more attractive, leveraging high volatility while betting on stable or rising prices. The recent rally from $50 has pushed implied volatility to its highest levels of the year. A similar spike occurred in the second quarter of 2024, leading to a consolidation phase. As a result, buying outright call options has become costly, prompting traders to consider bull call spreads to reduce their entry costs. The gold-to-silver ratio has dropped to a yearly low of 77, a level not seen since before the sharp economic downturn in 2023. This suggests that silver’s strength relative to gold is significant. Traders might look to use futures to go long on silver and short on gold, betting that Silver’s outperformance will continue through the Fed’s decision-making.

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