Silver prices took a step back on Tuesday, following their first record high in over 45 years, as concerns over supply and a short squeeze added fuel to a year-long rally driven by investor worries about government debt levels and persistent inflation.
In a historic day of trading, spot prices for the precious metal surpassed $53 an ounce after a prolonged rally culminated in a brutal short squeeze, compelling several investors to enter the market at already inflated prices, as reported by .
The frenzy was particularly pronounced in London where a supply shortage impacting the City's premier metal exchange and bullion market pushed prices even higher.
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The difference between silver bars traded in New York and London peaked at $3 last week, and became so severe that some traders attempted to transport the bars from New York via aeroplanes – a method of transportation typically reserved for gold.
Spreads and the spot price cooled off after news of the arbitrage surfaced. However, the surge meant that silver had already eclipsed an all-time high that had been in place since 1980, when the billionaire Hunt brothers tried to monopolise the market, sparking a massive leap in prices that was swiftly followed by a sharp downturn.
"Silver is living up to its reputation as gold's unruly younger sibling," commented David Morrison, senior market analyst at Trade Nation. "It soared overnight to hit a fresh all-time intraday high. But it too hit a wall of sell orders as Europe opened. Silver hit $53.60 but then lost $3 in an hour or so... volatility is up, market spreads are widening and volumes thinning."
Alongside gold and platinum, silver has been one of the top performing assets this year, increasing by over 75 per cent as investors seek alternative stores of value amidst concerns of an impending stock market correction, escalating sovereign debt levels and unclear monetary policy.
This trend – known as the debasement trade – has gained new momentum in recent weeks, with gold surpassing $4,100 on Monday and platinum achieving a nearly 82 per cent gain for the year to date.
"Gold has led the way as a store of value, but we're now seeing fundamental support for a broader range of metals," stated Iain Pyle, senior investment director at Aberdeen. "Silver... and platinum have all moved up markedly in recent months – to date at least. We see a structural deficit forming," said Silver and platinum have both outpaced gold year-to-date, yet their supply remains largely inelastic."