Gold and silver lose ground but recovered from lows ahead of FOMC meeting

Silver traded near its all-time high on Monday, supported by the strongest weekly inflows to exchange-traded funds since July. The precious metal has nearly doubled in value this year, with most gains concentrated in the past two months, while gold traded relatively flat.

The white metal rose to approximately $58.50 per ounce, within a dollar of the record reached in the previous session. Holdings in silver-backed ETFs increased by nearly 590 tons last week, signaling investor confidence that the rally has further upside potential.

Silver's surge has been bolstered by market expectations that the Federal Reserve will reduce interest rates at this week's meeting—a typically positive catalyst for non-yielding precious metals. The market continues to digest the aftereffects of a historic short squeeze in London, triggered by a supply crunch in the benchmark market amid surging demand from India and silver-backed ETFs. While the London supply situation has eased as additional metal arrives at vaults, other markets face constraints, with Chinese inventories at decade lows.

Implied volatility in the iShares Silver Trust, the largest silver-tracking ETF, climbed last week to its highest level since early 2021, when the metal briefly attracted attention from meme-stock traders. The fund captured nearly $1 billion in inflows over the past week—exceeding flows into the largest gold fund—providing additional support for spot prices.

Options on Comex silver futures have experienced significant buying activity, reflecting demand for protection against increased volatility and potential further rallies. Retail participation has intensified, with five-day average volume on micro futures contracts reaching levels only previously exceeded in mid-October, according to CME Group data.

The heightened volatility will require sustained large price swings to support rallies into uncharted territory. As of December 2, silver traded at an 82% premium to its five-year average—approaching its most extreme year-end deviation from this mean since 1979, according to Bloomberg Intelligence senior commodity strategist Mike McGlone.

Silver futures traded at $58.49, down $0.30 (-0.50%) on the day, well off session lows of $57.77. Gold fared better, trading at $4,223, down $4.70 (-0.12%).

This week's FOMC meeting may already reflect expectations of a 25 basis-point rate cut, with the CME FedWatch tool indicating an 89.4% probability. While inflation has shown signs of cooling and labor market conditions have weakened, market participants assign minimal probability to a 50 basis-point reduction. However, such an outcome—while unlikely—would represent a significant market-moving event. The last non-pandemic half-percentage-point rate cut occurred in November 2019, when the Fed cited economic weakness.

Wishing you as always good trading,