TD Securities' commodity analysts have once again underestimated the momentum in the silver market. The Canadian bank has been forced to close out its silver short position for the second time since last October, stopping its losses.
In a trading note released on Wednesday—just one week after establishing the short position—TD's commodity analysts stated they had liquidated the position, incurring a loss of $606,000. The bank reported that its stop-loss order was triggered when the silver price reached $93.15 per ounce, as the March silver futures price surged to a record high of $93.70 per ounce.
TD Securities initially established the short position at a price of $78 per ounce. Within a single week, the price of silver skyrocketed by over 19%. Although the precious metal has retreated from the record high set overnight, its cumulative gain since the start of the new year still exceeds 21%.
In the initial trading note last week, the bank's senior commodity strategist, Daniel Ghali, stated that the bank expected downward momentum in silver prices to intensify, as annual index rebalancing was projected to withdraw approximately $5 billion from the market.
TD Bank also anticipated that some rebalancing in the physical market would enhance liquidity, thereby alleviating the pressures that previously triggered an unprecedented short squeeze and drove prices to record highs.
However, in his latest note, Ghali indicated that the index rebalancing has already been fully digested by the market.
"The Bloomberg Commodity Index (BCOM) rebalancing is substantial for silver. Although the absolute price has not declined, the movement in the forward curve structure and open interest data suggest that the hedging flows over the past week are more likely related to new long positions, which hedged approximately $7 billion of outflows," Ghali said. "These new long positions are now vulnerable, but in the absence of forced selling, a shift in market sentiment may be required to trigger their liquidation, which might only occur after a technical breakdown."
Despite TD Securities suffering a second loss on its silver trade, Ghali stated that the market still appears severely overbought.
"Over the past few months, the silver market has moved beyond rational, momentum-driven territory, but an inflection point may be imminent," he said.
A potential catalyst for the silver market could be a decision by former President Trump not to impose tariffs on the precious metal. Silver was designated as a critical metal last year.
The market has been eagerly awaiting a tariff decision from the government under Section 232 of the Trade Expansion Act of 1962, as the threat of import tariffs on silver has exacerbated liquidity and supply chain issues in the market.
"We are convinced that concerns over physical silver supply will ease significantly for three reasons: (1) the largest recorded wave of inventory restocking has occurred; (2) shortages are contracting, leading to a shorter inventory coverage cycle; and (3) fragmentation in the inventory system has improved, with the 430 million ounces of silver now in COMEX warehouses effectively accessible to the London market, supporting the largest recorded inventory restocking in London," Ghali stated.
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