The last few months have seen gold soar to record highs above $4,000 amid the so-called “debasement trade,” with investors flocking to the perceived safety of alternates while pulling away from major currencies.
It’s a monetary regime change – if market participants are trading anything it’s getting rid of a fiat currency (“it’s the denominator, stupid”) for a store of value – and we’re seeing it in spades with Bitcoin and gold:
However, quietly on the side, silver has been outperforming gold...
Source: Bloomberg
Citadel's Ken Griffin said investors are starting to view gold as a safer asset than the dollar, a development that's "really concerning" to the billionaire investor.
“The conversation around debasement, irrespective of its realities, has ignited investors enthusiasm towards gold and silver to the point where regression analysis gives way to something more akin to how investors view AI or the technology sector,” said Kieron Hodgson, commodity analyst at Peel Hunt Ltd.
And now that is spreading to bitcoin and silver as the white metal topped $50 this morning...
Silver's surge takes it back to the highs from 1980...
...when the Hunt brothers, Texan oil billionaires and notorious speculators, whose fear of inflation and belief in the metal as a store of wealth prompted them to try to corner the global market. They stockpiled more than 200 million ounces, driving the price above $50 an ounce before it crashed below $11.
Notably, silver in yen really snapped higher this morning...
With a break in the relationship as silver topped $50 - Something's going on there... Were silver shorts being funded with Yen shorts? It appears that forced closing of silver shorts led to forced closing of yen shorts?
The white metal is used around the world as an investment asset, but also has industrial applications including in solar panels and wind turbines, which collectively account for more than half of the silver sold. Demand is set to exceed supply for the fifth consecutive year in 2025.
“I think the deficits are the slow burn,” said Philip Newman, director of consultancy Metals Focus Ltd.
“Just the size of the deficits have been so remarkable, and it takes time for that to manifest itself in the price.”
Additionally, Bloomberg reports that the silver market in London has tightened to an almost unprecedented degree, with sky-high borrowing costs for the metal.
This year, fears that the US could levy tariffs on silver have spurred a dash to ship the metal to the US, drawing down inventories in London and reducing the amount of material available to borrow.
Much of the stock of silver in London is held in vaults backing exchange-traded funds, and not available to buy or borrow on the market.
“I think when you look at above-ground stocks of silver in London you are looking at an increasingly small share, which is not allocated against ETFs,” Newman said.
As we detailed earlier in the week, it appears the so-called "debasement trade" - driving investors to bet more on gold, silver, and bitcoin - is set to continue with Gold remaining Goldman Sachs' highest-conviction long commodity recommendation because of the:
a. Additional price upside in our base case (driven by structurally higher central bank gold demand)
b. Large upside risks to our price forecast from potential additional private sector diversification
c. Attractive portfolio hedging properties in downside (tail) scenarios that .are less favorable for equity-bond portfolios than our base case (e.g. global growth slowdown, rising market concerns about DM macro policy)
This price hike is likely to trigger more fears from Citadel's Griffin who warned, during and interview with Bloomberg's Francine Lacqua, that "we're seeing substantial asset inflation away from the dollar as people are looking for ways to effectively de-dollarize, or de-risk their portfolios vis-a-vis US sovereign risk."