As we step into 2024, the dynamics of the commodities market are undergoing a crucial transformation, particularly in the silver and gold sectorsDaniel Ghali, a senior commodity strategist at TD Securities, has recently illuminated some significant changes in the landscape and their implications for investors, making the case for why silver is drawing substantial attentionGhali believes that with the Federal Reserve likely to resume cutting interest rates in the latter half of 2025, silver prices are poised for a significant uptickYet, he cautions that the ongoing trade war and corresponding tariff threats from the U.Sare adversely affecting global silver stocks, creating unprecedented uncertainties for traders.

On January 7, Ghali stressed the need for investors to pay attention to the tumultuous state of the silver market, one that has been profoundly affected by tariff anxieties

"It's hard to see this just from the prices, but in the past month, the precious metals market has seen a significant upheaval," he elaboratedThis upheaval is attributed to the rising fears of tariffs imposed on metals, which have driven traders to reposition their inventories from London and other international markets to the U.Sto hedge against potential tariff impingementsTraditionally, precious metals have been regarded as a form of currency, yet this new approach indicates a shift throughout the market where traders are now taking cautionary measures over historic practices.

Ghali noted, "They are moving physical metals to the U.S."; not contracts or other financial instruments, but real quantities of metals, indicating a trend that could have far-reaching consequences

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He warned that this trend could inadvertently lead to a shortage in the vast silver bullion systems located in London, which currently marks one of the pressing challenges within the commodity marketsThe silver market, as Ghali sees it, appears to be teetering on a brink of potential shortages, growing more pronounced by the day.

He elaborated on the implications of being undersupplied: "A shortage refers to that critical moment when metal inventories drop below a certain threshold, challenging the market's structureHerein lies the dilemma: the threat of widespread tariffs is causing metals to flow out of the world's largest markets and into the U.S., depleting the buffers that merchants typically utilize for over-the-counter trading each day." This depletion suggests that the market's resilience is waning.

Ghali pointed out, "We have been experiencing significant shortages in silver for four consecutive years now, which indicates a trend that is accelerating." He sees this liquidity drain ultimately creating favorable conditions for silver prices

"If we reach that critical threshold, silver prices could experience explosive movementsWe've witnessed similar phenomena in other commodities where prices surged dramatically; for example, copper saw substantial increases last year under similar circumstances, and palladium has demonstrated a parallel trajectory in prior yearsRight now, the silver market seems to be drifting into this anomalous pattern," he predicted.

However, Ghali admitted that the current silver prices do not adequately reflect the urgency and severity of the situationHe stated, "I think it’s an issue that has flown under the radar and could be quite criticalYet, macro investors in the silver market are underwhelmingly engaged; no one seems to be paying attention." For investors keen on grasping the situation, Ghali points to reliable indicators related to silver inventories, although these figures don’t precisely convey the speed at which these stocks are being consumed.

He noted, "The London Bullion Market Association custodians release some data regarding their vaults monthly, providing avenues for tracking these statistics." However, he cautioned, "Estimating how much metal is genuinely available for purchase requires deeper analysis." For context, he suggested that while London's vaults might hold a billion ounces, only about 300 million ounces are estimated to be readily accessible to the market.

When asked how TD Securities anticipates silver prices will respond to these developments, Ghali expressed a confident outlook

"We expect that silver prices will eventually trend towards around $40 per ounce, a significant increase from current levels." Meanwhile, he has observed similar intriguing developments in the gold market, noting pivotal support factors returning to the market.

In discussing gold, Ghali observed, "We foresee some promising signs before the Federal Reserve moves." Reflecting on previous conditions, he highlighted that central bank purchasing activities had noticeably slowed down, while macro funds were holding extreme long positions in goldSimultaneously, the physical market seemed locked in standstill, with buyers entirely absent.

Nevertheless, today there are signs that this buyer strike may finally be concluding