Gold and silver surge but the real story lies in the Comex trading volume

The precious metals complex continues its remarkable ascent, with gold closing in on its record high less than $30 away and silver establishing new all-time highs amid a confluence of supportive factors including cooling labor markets, persistent geopolitical tensions, and structural supply constraints that are reshaping investor portfolios worldwide.

Silver surged above $66 per ounce Wednesday, reaching new all-time highs as investors sought alternative assets following a mixed US jobs report. The white metal's performance in 2025 has been nothing short of spectacular, with year-to-date gains approaching 130%, dramatically outpacing its traditional counterpart gold.

The November unemployment rate climbed to 4.6%, its highest level since 2021, reinforcing market expectations for additional Federal Reserve rate cuts in 2026. This labor market softening has intensified demand for precious metals as hedges against potential economic slowdown and currency debasement concerns.

The silver rally extends beyond mere monetary considerations. The global silver market continues its longest streak of supply deficits in recent years, with the 2025 World Silver Survey noting a five-year structural shortfall. Mine production has essentially stagnated near 813 million ounces annually, unable to keep pace with surging demand from industrial applications.

Perhaps most striking is the convergence in futures market activity between gold and silver. Silver futures trading volume has surged to approximately 145,000 contracts, an unusually high level that brings it remarkably close to gold's 200,000 contract volume. This narrowing gap is highly unusual from a historical perspective, as silver typically trades at a fraction of gold's futures volume.

Historically, gold futures have dominated precious metals trading by a wide margin, often maintaining volume ratios of three-to-one or higher over silver. The current ratio of less than 1.4-to-1 represents a dramatic shift that market participants are noting as a key indicator of silver's emerging importance in the investment landscape.

The elevated silver futures activity reflects not only speculative interest but also significant hedging demand from industrial users concerned about supply availability. When futures volume ratios shift this dramatically, it often signals a fundamental change in market structure rather than mere short-term speculation. The compression in the volume differential suggests that silver is increasingly being treated as a macro asset, rather than simply as gold's volatile counterpart.

Silver's rally this year is also supported by tightening inventories and robust retail and industrial demand, particularly from the expanding solar, electric vehicle, and data center sectors. The renewable energy transition has emerged as a critical driver, with photovoltaic solar panel manufacturing consuming record quantities of the conductive metal.

This industrial dimension distinguishes silver from purely monetary assets and provides a fundamental floor beneath prices. Unlike gold, which primarily serves as a store of value, silver's dual role as both industrial commodity and precious metal creates unique supply-demand dynamics that analysts believe could propel prices significantly higher.

Gold futures currently trade at $4,371, reflecting a more measured but still impressive 65% year-to-date advance. Central bank purchases, robust ETF inflows, and a shift by investors away from sovereign bonds and currencies continue to underpin prices, creating what analysts describe as a paradigm shift in gold's traditional pricing relationships.

The gold-silver ratio, which measures how many ounces of silver are required to purchase one ounce of gold, has compressed dramatically from its 2020 peak of 108 to the current level of 65. This normalization suggests silver may still offer relative value compared to gold, despite its extraordinary run.

The post-1971 average gold-silver ratio is around 66, with prior silver bull runs seeing that figure drop below 40. If historical patterns repeat, silver could see substantial further appreciation relative to gold, potentially justifying analyst forecasts for $100 silver in 2026.

The Federal Reserve's recent rate cut and the launch of Treasury debt purchase programs have injected substantial liquidity into the financial system. Analysts observe that global financial liquidity is being amplified by the US rate reductions, creating conditions historically favorable for precious metals appreciation.

Markets are pricing approximately 59 basis points of additional easing in 2026, with Fed Governor Christopher Waller indicating borrowing costs should decline by up to one percentage point to support employment as job growth approaches zero.

Geopolitical risk premiums remain elevated, with President Trump ordering a total blockade of sanctioned Venezuelan oil tankers following last week's seizure and US military buildup, even as progress in Russia-Ukraine peace negotiations provides occasional countervailing pressures.

Wishing you as always good trading,