 |
| Silver Prices |
Impact of US Tariffs on Silver Market Dynamics
Silver prices retreated from a nearly 14-year high as the US dollar strengthened following President Trump’s announcement of 30% tariffs on imports from the EU and Mexico. The tariffs, set to take effect August 1, heightened trade tensions with key silver-producing regions. Since silver is priced in US dollars, the rising greenback reduced foreign investor demand. This dynamic forced silver spot prices down by up to 0.8% during US trading hours.
The US-Mexico-Canada Agreement excludes silver from tariffs; however, concerns about potential changes have unsettled traders. Mexico, the world’s largest silver producer, faces uncertainty in export dynamics, influencing market sentiment. Despite these headwinds, silver prices remain up 32% year-to-date, outperforming gold by 5%.
Physical Supply Constraints and ETF Growth Pressure
Meanwhile, the physical silver market faces tightening supply, especially in London, where exchange-traded funds (ETFs) hold the majority of silver inventories. The volume of silver-backed ETFs surged by approximately 2,570 tons since February, restricting silver availability for lending or purchasing. This shortage increased the implied cost of borrowing silver to above 6% annually, a significant rise from near-zero rates historically.
This physical strain supports higher prices despite the recent pullback. Additionally, silver’s industrial demand, particularly in solar panel manufacturing, contributes to a projected fifth consecutive year of global deficit. The Silver Institute reports ongoing supply-demand imbalances, emphasizing silver’s dual role as both an investment and industrial metal.
Silver Relative to Gold and Market Outlook
The silver-to-gold ratio recently declined to about 86 ounces of silver per ounce of gold, below the 10-year average of 80. This indicates silver’s recent outperformance relative to gold, though it remains historically undervalued. Investors continue to view silver as a safe haven amid trade policy uncertainties.
However, the strengthened US dollar and looming tariff risks create volatility. If trade tensions escalate, industrial supply chains, especially those reliant on Mexican silver, could face disruption. Thus, while silver prices remain robust, market participants must navigate geopolitical risks and currency fluctuations.
ScrapInsight Commentary
Silver’s price movements reflect a complex interplay of trade policy and physical market tightness. The US tariffs raise supply chain concerns, particularly regarding Mexican exports. Nonetheless, growing industrial demand and ETF inflows underpin silver’s long-term strength, suggesting continued price resilience despite short-term volatility.
