Silver, copper eclipse gold as top metals bets on supply fears

Silver has nearly doubled this year, with most gains occurring in the past two months due to a historic supply squeeze in the benchmark London market amid surging demand from India and silver-backed exchange-traded funds. While that crunch has eased in recent weeks as more metal is shipped to London vaults, other markets have seen supply constraints: Chinese inventories are at decade lows.

The silver rally has seen higher volatility, said Ed Meir, an analyst with Marex Group. “If you look at the chart, there’s been a steeper parabolic move up than seen in previous rallies. The buying is much more concentrated, and in a much shorter time frame.”

Silver has outpaced gold of late. Since bullion hit a record on October 20, it’s moved mostly sideways, while silver has gained more than 11% to a fresh record and copper has climbed almost 9%.

Implied options volatility in the iShares Silver Trust, the biggest ETF tracking the metal, rose last week to the highest since early 2021, when for a brief period silver attracted meme-stock traders. Almost $1-billion flowed into the ETF over the past week, exceeding the influx into the largest gold fund and adding further support to spot prices.

Western investors — who have been significantly under-allocated to precious metals — have flocked to silver ETFs in recent months, and there’s significant room for further inflows as allocation normalizes, said Trevor Yates, a senior investment analyst at Global X ETFs.

Options on Comex silver futures have also faced a buying spree amid demand for protection against wider swings and especially further rallies. Retail traders are pouring into the market — five-day average volume on micro futures contracts is at a level only exceeded in mid-October, CME Group Inc. data show.

One example of the fervor is lottery-ticket style options: more than 5 000 lots of Comex silver February $80/$85 call spreads — equivalent to 25-million troy ounces — changed hands on Wednesday and Thursday, building up a position to profit from a feverish rally to start the new year.

To be sure, higher volatility will need to be fed by further large swings, especially to support rallies into uncharted territory. At an 82% premium to its five-year average on December 2, silver is approaching its most extreme year-end deviation from this mean since 1979, Bloomberg Intelligence senior commodity strategist Mike McGlone wrote in a note to clients.

Where the silver rally ends is hard to pin down, according to Marex’s Meir.

“When a chart breaks out like this, there are no resistance signposts,” he said. The top “could be $85, could be $60.”

While copper has less of a financial component, the growing demand for electrification to feed AI data centers as well as clean-energy projects has strategists predicting supply shortfalls in years to come.

In the past week, as copper rose to an all-time high of more than $11 600 a ton on the London Metal Exchange, at-the-money volatility on March Comex contracts in New York was up more than four points, with the biggest open interest clustered in call options above the current market level.

Copper pricing and trade flows have been upended since US President Donald Trump in February announced plans to place tariffs on the metal in a bid to boost US supply. The decision caused futures in New York to spike above those on the LME, spurring a record surge in US imports as traders including Mercuria Energy Group, Trafigura Group and Glencore capitalized on the arbitrage.

Downside for copper prices will be limited because of the metal’s structurally bullish fundamentals, said Xiaoyu Zhu, a trader at StoneX Financial. Supply constraints from disruptions at major mines come just as demand from electrification and the energy transition is on the rise, he said.

While the flow slowed in late July after Trump unexpectedly spared commodity-grade forms of the metal from tariffs, in recent weeks trading houses have again been racing to ship more metal after Trump pledged to revisit plans to impose duties on primary copper next year.

Global balances have tightened substantially as material has shifted into the US largely due to actual or potential tariffs, and the incentives — reflected in much higher US prices compared with global benchmark prices — favor keeping the material in the US, according to Greg Sharenow, a portfolio manager at Pacific Investment Management Co.

Part of what has fueled the global tightness in some of the metal markets, whether it be precious or in copper, has been a function of the arbitrage trade.

“It’s hard to say how durable that is, so we could have a 10% or 15% retrace in either commodity and not impact the long-term stories for them,” Sharenow said.