After the Fed resumed interest rate cuts in September and cut rates again in October, it cut rates as scheduled in December, with a total reduction of 75 basis points for the year. During this round of rate cuts, three members of the Fed voted against the decision. Fed Governor Milan wanted a 50 basis point cut, Kansas Fed President Schuette and Chicago Fed President Evans wanted to keep rates unchanged, and the division within the Fed increased.

In addition, the Fed announced the purchase of short-term US Treasuries in December to maintain an ample supply of reserves, which was later than expected and the scale exceeded expectations. The dot plot maintained the guidance of one rate cut in 2026-2027. Powell's statement was overall "dovish", although it implied that the Fed might pause rate cuts until there was some deviation from the benchmark forecast in employment or the economy, it also left the possibility of rate cuts at the January FOMC meeting. Therefore, the Fed's rate cut this time still belongs to the category of "precautionary rate cuts", and the threshold for subsequent rate cuts will be further increased after the policy rate returns to neutrality. In addition, Powell also denied the possibility of a Fed rate hike.

Related data shows that the Fed officials have raised the GDP growth forecast for this year and the next three years, slightly lowered the unemployment rate forecast for 2027 by 0.1 percentage points, and kept the unemployment rate forecast for other years unchanged. This adjustment shows that the Fed believes the labor market is more resilient. In addition, Fed officials further lowered the inflation forecast, expecting inflation to fall back to 2% by 2028. Fed officials are more optimistic about the overall economy, predicting that the US economy will evolve towards a "soft landing".

During Powell's term next year, the Federal Reserve is likely to "remain on hold" until the new Fed chair takes office. However, there is still uncertainty regarding the selection of the new Fed chair. After the new chair takes office, they are likely to send a "dovish" signal to the market. The improvement in risk appetite triggered by the expectation of interest rate cuts will continue.

Spot supply is tight.

Recently, the expectation of interest rate cuts by the Fed has intensified, and the market's optimistic sentiment has driven the silver price to a historical high. Silver has both financial and commodity attributes. From the perspective of financial attributes, both silver and gold are in a macro environment of loose monetary policy. In terms of supply, global silver has been in a state of shortage for five consecutive years, and the market gap is expected to reach 29,500 tons by 2025. At the beginning of this year, the United States imposed tariffs and listed silver as a critical mineral, leading many traders to import silver from overseas to the United States in large quantities from the beginning of the year. After the London market was short of silver in October, the inflow of silver inventories from China and the United States to London alleviated the tension. The global decline in inventories has already led to a clear squeeze signal in the spot market, and the tension in physical delivery has triggered a chain reaction of short squeeze, which may further push up the silver price.

Recently, the silver inventory in Shanghai rebounded after a continuous decline, but the COMEX silver inventory decreased significantly. The latest data shows that the silver inventory of the Shanghai Futures Exchange is 742 tons, an increase from the significantly low level in the past 10 years. The COMEX silver inventory is 14,200 tons, a significant decrease compared with 16,500 tons at the beginning of October.

In the context of tight physical supply, in the short term, the silver price may maintain a strong trend, but it is necessary to closely monitor the delivery situation of COMEX December silver and the changes in the inventory of the Shanghai Futures Exchange. If the degree of supply shortage in the future is somewhat alleviated, or the amount of December delivery does not meet market expectations, the silver price could still face the risk of sharp fluctuations.

The gold-silver ratio further repaired.

Recently, the silver price has surged significantly while the gold price has been consolidating at a high level, bringing the silver-to-gold ratio down to around 66, close to the 2023 low.

Although gold and silver are both considered precious metals and are likely to rise and fall together, there are differences in their fundamental properties, and their trends also show significant differences. Silver has a wide range of applications in the industrial field, with industrial demand accounting for nearly 60% of total demand, while the industrial demand for gold accounts for about 10%. Therefore, the price of silver is more sensitive to the economic cycle and changes more significantly than the price of gold. Gold has a strong anti-inflation attribute, but the impact of the monetary attribute on the risk-taking attribute is greater. The main demand for gold is for investment or risk-taking, and it usually acts as an inflation hedge and a safe-haven asset when the market trend is weak. In periods of economic or geopolitical uncertainty, the price of gold rises more than silver, and the ratio of gold to silver increases. In times of economic recovery, due to the increase in industrial demand, the price of silver rises more, and the ratio of gold to silver narrows.

The current silver-gold ratio recovery is driven by the rise in silver. As a metal with stronger trading and industrial attributes, silver has seen a larger price increase in the context of the Fed's rate cuts and strong demand. From an asset allocation perspective, after the rise in gold prices, silver, with a lower valuation and higher elasticity, has attracted both risk-averting and trend-following capital for allocation.

In the short term, the delivery of COMEX silver futures will continue until the end of the month. December is a traditional large delivery month, and in the context of tight physical supply, high volatility may continue until the end of the year. In the future, opportunities for a rebound in the ratio of gold to silver can be watched.

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