Focus Silver prices are up 4%; Is this the start of the rally? TD Securities says it is still three months away

Silver is doing what it does best, outperforming gold in a new upswing after the U.S. government reported weaker-than-expected inflation pressures.

However, Bart Melek, head of commodity strategy at TD Securities, warned that the silver market needs to see a significant change in investor demand and renewed industrial interest if it is going to escape the gravity around $23 an ounce in the near term.

"Concerns surrounding higher-for-longer interest rates, a lack of speculative appetite, less physical demand amid Chinese economic weakness and a pending U.S. recession suggest the silver market is set to be looser than the projected 110koz annual deficit this year suggests," he said. "Consequently, silver is projected to trend near a low $23/oz for much of the next three months."

However, Melek added that he sees solid potential for silver by year-end as the Federal Reserve starts to cut rates as recession conditions begin to bite.

"As it becomes clear that the Fed and other central banks will start to pivot to a more dovish monetary policy stance in the early months of 2024, boosting the prospects for an economic recovery on the horizon, we expect the white metal will set its sights towards $26/oz in the final days 2023," he said.

Although Wednesday's cool inflation data is providing solid support for silver, it has not impacted interest rate expectations. Markets have all but priced in a 25-basis point hike in two weeks. However, growing optimism that this will be the last rate hike is a major catalyst behind Wednesday's rally.

September silver futures last traded at $24.010 an ounce, up 4% on the day.