MARKET NEWS

(Bloomberg) -- Silver and copper have replaced gold as the hot metal trade heading into 2026, with institutional and retail traders positioning for record rallies.

Silver has nearly doubled this year, with most gains occurring in the past two months due to a historic supply squeeze in the benchmark London market amid surging demand from India and silver-backed exchange-traded funds. While that crunch has eased in recent weeks as more metal is shipped to London vaults, other markets have seen supply constraints: Chinese inventories are at decade lows.

The silver rally has seen higher volatility, said Ed Meir, an analyst with Marex Group Inc. “If you look at the chart, there’s been a steeper parabolic move up than seen in previous rallies. The buying is much more concentrated, and in a much shorter time frame.”

Silver has outpaced gold of late. Since bullion hit a record on Oct. 20, it’s moved mostly sideways, while silver has gained more than 11% to a fresh record and copper has climbed almost 9%.

Implied options volatility in the iShares Silver Trust, the biggest ETF tracking the metal, rose last week to the highest since early 2021, when for a brief period silver attracted meme-stock traders. Almost $1 billion flowed into the ETF over the past week, exceeding the influx into the largest gold fund and adding further support to spot prices.

Western investors — who have been significantly under-allocated to precious metals — have flocked to silver ETFs in recent months, and there’s significant room for further inflows as allocation normalizes, said Trevor Yates, a senior investment analyst at Global X ETFs.

Options on Comex silver futures have also faced a buying spree amid demand for protection against wider swings and especially further rallies. Retail traders are pouring into the market — five-day average volume on micro futures contracts is at a level only exceeded in mid-October, CME Group Inc. data show.

One example of the fervor is lottery-ticket style options: more than 5,000 lots of Comex silver February $80/$85 call spreads — equivalent to 25 million troy ounces — changed hands on Wednesday and Thursday, building up a position to profit from a feverish rally to start the new year.

To be sure, higher volatility will need to be fed by further large swings, especially to support rallies into uncharted territory. At an 82% premium to its five-year average on Dec. 2, silver is approaching its most extreme year-end deviation from this mean since 1979, Bloomberg Intelligence senior commodity strategist Mike McGlone wrote in a note to clients.