The Surge of Silver by 145%: Retail Investor Frenzy Is Driving the Market to Extremes

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Since the beginning of this year, silver prices have surged by 145%, breaking through $75 per ounce. Even after setting a 45-year high in October, the rally remains strong, far outperforming gold’s roughly 70% rise over the same period, as retail investors' frenzy is pushing the silver market to extremes.

Upstream mining sectors have benefited significantly, with major mining companies such as Hochschild Mining and Coeur Mining seeing their stock prices double this year. Meanwhile, retail investors are accelerating their entry. Their participation ranges from physical silver collecting to silver ETFs and derivative trading. The participants include traditional precious metal allocators, as well as a large number of emotionally driven short-term traders.

The current rise in silver prices is the result of tightening supply and growing industrial demand. Globally, independently minable silver resources are becoming increasingly scarce, while consumption in green industries such as solar power continues to climb, putting constant pressure on market inventories. At the same time, concentrated buying of silver assets by retail investors is further widening the supply-demand gap.

However, the market’s extreme exuberance has triggered overheating warnings. According to Bloomberg, trading volumes of options for the world’s largest silver ETF, iShares Silver Trust, have surged recently, nearing the peaks last seen during the 2021 Reddit retail trading frenzy. Brent Donnelly, President of market research firm Spectra Markets, notes that silver prices often exhibit sharp upswings and downswings, with big corrections after rapid rises. The current rally driven by retail sentiment and industrial concepts is making the silver market increasingly volatile.

Retail Investors Shift Toward Physical Silver

Jay Moorer's investment shift is a microcosm of this silver boom. Moorer, a 33-year-old trucking manager from Arizona, primarily invested over the past decade in stocks and cryptocurrencies via mobile apps. About two months ago, influenced by online videos and the rapid increase in silver prices, he began buying physical silver.

Moorer made his first purchase of three ounces of silver for about $150. He then gradually amassed around 60 ounces of various silver jewelry and coins with spare funds, storing them in his home safe. "I know prices are rising quickly now, but I don't plan to sell," he said.

Compared with investing through ETFs, purchasing physical assets requires more detailed research from investors. Due to the current shortage of high-precision metal testing equipment online, Moorer mainly trades at stores equipped with professional testing tools, and he carries a small magnet for basic authentication. Last December, he purchased his first ounce of gold, believing that physical precious metals are easy to store, verify, and pass on, and can maintain value even in times of financial turmoil or if access to digital systems is cut off.

Chris Pollock, founder and managing partner of Canadian retail chain Canada Gold, disclosed that his store's silver sales in December last year rose about 150% year-on-year. He said that one Monday this year, the store had the highest single-day sales in its history, up another 50% from the previous peak.

Supply and Demand Structure Supports Prices

The rise in silver prices is strongly supported on the supply side. Globally, high-quality silver resources that can be mined independently are becoming rare, while industrial demand from manufacturing sectors, such as solar panels, remains robust. Personal investors' concentrated hoarding of physical silver further diverts metal supply that would have been used in industrial production, intensifying market tightness.

Like gold, silver is also long favored by some investors for its traditional ability to hedge against inflation, sovereign debt risks, and uncertain financial systems. Since the beginning of this year, the macro environment of declining bond yields and high equity valuations has provided additional momentum for investors to allocate more precious metals assets.

Bulls highlight that considering inflation, silver prices would need to exceed $200 per ounce to break the historical inflation-adjusted high set in 1980, implying more upside at current levels. On the cautious side, some point out that the silver market is relatively small, less liquid than gold, and prone to sharp upward surges followed by significant pullbacks in the short term.

Speculative Activity Heats Up, Raising Concerns

Speculative sentiment is rising significantly, with some investors chasing silver only because of fast-rising prices. Trading volume for options of the world's largest silver ETF, iShares Silver Trust, has surged recently to the highest level since the 2021 Reddit-fueled retail trading wave.

Because the market is relatively small, silver prices are more prone to drastic swings. Some analyses point out that silver tends to surge sharply and then fall quickly. While this high volatility presents trading opportunities, it also carries considerable risks. Investors need to stay alert to market cycle shifts.

Currently, gold prices have reached about $4,500 per ounce, hitting multiple record highs in both nominal and inflation-adjusted terms. Though silver has risen more sharply over the same period, its volatility is much higher than gold, requiring participants in the silver market to adopt more prudent risk management strategies.

Risk warning and disclaimerThe market is risky; investment requires caution. This article does not constitute personal investment advice and has not taken into account the unique investment goals, financial situation, or needs of any particular user. Users should consider whether any opinion, viewpoint, or conclusion in this article is suitable for their specific situation. Investing based on this content is at your own risk. ```