【MACRO Alert】Is silver poised to take the top spot? Is the driving force behind it once again ‘Made in China’?

During the minute from 21:12 to 21:13 Beijing time on May 28th, the most active COMEX silver futures contract traded 707 contracts, with a total value of $114 million. Spot silver briefly exceeded $32 per ounce for the first time since May 22nd, before slightly pulling back to around $0.5.

UBS's latest forecast suggests that silver prices will continue to rise, reaching $34 per ounce by the end of September, $36 per ounce by the end of 2024, and maintaining that level until the end of March 2025. By the end of June 2025, prices are expected to reach $38 per ounce. Silver has shown strong performance, especially in May, surpassing gold, leading to the gold-silver ratio dropping to its lowest point in nearly two years. UBS believes that silver's performance will continue to be excellent, expecting the gold-silver ratio to narrow to around 70. Analysts point out that silver is garnering attention as a more attractive investment choice.

Silver's industrial applications are recognized, particularly in the solar panel, electronics, and electric vehicle sectors. Demand for silver is expected to significantly increase in the coming years, especially in the photovoltaic industry. However, supply may face challenges as mine closures in Peru could lead to a decrease in supply, with this year's supply shortfall expected to reach 17% of global demand. Some analysts believe that silver's lower price could make it more popular than gold, increasing purchasing volume.

Due to silver's dual utility as an industrial metal and a financial asset, it's currently at a sweet spot. It's an essential material for solar panels and a cheaper alternative to gold, with demand in China continuously pushing gold prices to new records. Despite silver reaching a new high in the past week, the arbitrage window, the price difference between China and the world, has widened further. This has led to more silver being shipped to China, potentially squeezing supply in other countries.

In the coming weeks, China's silver imports could surge as domestic demand drives domestic silver prices far above the international market, which traders will capitalize on. China's silver imports have been strong in recent months, reaching a three-year high of about 390 tons in December last year before easing slightly. Import volumes surged again to over 340 tons in April this year, with a five-year monthly average of about 310 tons.

Last week, the premium for spot silver in Shanghai climbed to over 15%, enough to offset the 13% tariff China levies on imported goods. Meanwhile, due to continued strong demand from the solar industry in recent years, China's silver inventories have decreased. Based on these facts, Daniel Ghali, senior commodity strategist at TD Securities Inc., stated, 'The wave of imports from China will further draw down Western free float.' He noted that market pricing hasn't reflected this yet.

Silver has shown strong performance recently, especially in May, surpassing gold and leading to the lowest gold-to-silver ratio in recent years. Despite strong US economic data and the Federal Reserve's hawkish stance pressuring silver prices, Credit Suisse believes silver will continue to perform well. They forecast that by 2025, the gold-to-silver ratio will further narrow to around 70.

According to data from the Silver Institute, driven by demand from the solar industry, total industrial demand is expected to increase by 9% to reach 711 million ounces. Credit Suisse predicts a significant supply deficit for the year, estimating a shortfall of 215.3 million ounces, equivalent to 17% of global annual demand, which will further drive up silver prices.