All you need to know about the surge in silver prices

Rising geopolitical tensions, coronavirus lockdowns and a slump in economic activity have remained the main factors behind the volatility in prices of precious metals in the past few weeks. Uncertain environments boost investor appetite for safe-haven commodities like gold and silver, especially on the back of easing economic measures that make government bonds less attractive.

Spot gold's rally has never been brighter as the yellow metal saw a record high of $1,980.57 per ounce on Tuesday before retreating. The rush for bullion also dragged silver to a seven-year high above $26 an ounce on Tuesday before it retreated

However, silver's performance outshone gold thus far as the metal recorded a jump of nearly 25% over the past six days.

Silver prices on Wednesday surged Rs 313 to Rs 65,540 per kg from Rs 65,227 per kg in the previous trade in futures trade as participants widened their bets on firm spot demand. Analysts said the rise in silver prices was mostly on the back of fresh positions built up by participants on a positive domestic trend.

Why have prices jumped?

The reason for this sudden jump is could mainly be attributed to the rising US-China tensions and lower returns on bonds as governments and central banks across the world are implementing stimulus packages to boost their declining economies. However, the dollar also paved the way for silver's rally.

According to a note by Kotak Securities, “Silver has benefited from persistent gains in gold price on the back of weaker US dollar and hopes of continuing stimulus measures. Industrial metals have also benefitted from weaker US dollar but rising US-China tensions remain a cause of concern.”

"Silver prices, usually, see a spike in the right conditions. Catalysts typically include a pick-up manufacturing demand and loose monetary policy, which increases its relative attraction as a store of value. We see both of these factors driving silver higher over the next 6-12 months,” analysts at Citi told Financial Times.

“We’re seeing both retail and institutional inflows into Exchange Traded Products and that is helping buttress the (silver) price,” Michael DiRienzo, executive director of the Silver Institute told Reuters.

Aiding this is a lack of supply, which makes the commodity more valuable. Consultancy Metals Focus expects a fall of 7% in mine output this year as operations get disrupted

Silver is both a valuable investment and an industrial metal used in solar panels, electronics. It sees a spurt in demand if countries decide to switch to greener energies manufacturing output for electricals sees an uptick.

However, this week’s Federal Reserve meeting will reveal more clues for precious metal investors and traders.

According to Goldman Sachs and Citigroup's forecast, silver will see robust growth for the next 6-12 months in line with gold and better demand for greener energy. Citi also said that silver would perform better as investors move to protect their wealth and global economic activity improves.

However, a Reuters poll of 42 analysts and traders conducted this month said silver would average $20.03 an ounce next year.