Oil and Silver Outperform DAX: Commodity Rally & Market Volatility

The DAX, typically the dominant topic among investors, has taken a backseat this year. Instead, discussions among both professional and private investors are revolving around silver and oil.

Silver, an asset class largely ignored for two decades due to its lackluster performance, has recently experienced a remarkable rally. Although a recent sharp correction saw silver plunge from an unprecedented $120 per troy ounce to $70, its appeal remains strong. Investors actively traded silver, engaging in both long and short positions on various exchanges.

In the initial weeks of the year, silver's trading volumes and market hype significantly overshadowed prominent tech giants like Nvidia, Alphabet, Tesla, and even the DAX. This precious metal consistently topped trading rankings, driving substantial market activity.

By March, the market's focus shifted abruptly to oil, largely influenced by the Iran conflict. A crucial aspect of the oil market is understanding phenomena like backwardation and contango, which indicate future price trends based on futures curves. Experts note that WTI oil's backwardation until January 2027 is the strongest in decades, coupled with an unusually high $15 spread between WTI and Brent crude.

Despite facing a recent setback due to the Iran war, precious metals, including silver, are poised for potential recovery. Geopolitical tensions, tariff threats, the AI boom, robust industrial demand, and an existing supply deficit are all considered significant drivers for their future performance.

A notable trend is the higher price premium for silver in China. Unlike Western exchanges, where "paper silver" largely dominates futures trading, Shanghai's market is primarily driven by physical transactions. Here, silver trades at approximately a 15% premium over the international spot price. This is often cited as evidence of strong physical demand rather than speculative buying, suggesting a real industrial need.

However, caution is advised regarding this premium: a 13% Value Added Tax (VAT) in China, primarily impacting private investors and small traders, forms the base of this premium. While the current surge isn't solely tax-driven, it's a complex interplay of taxes, supply and demand dynamics, and short-term market behavior.

Strong physical demand amplifies the base premium, while margin calls on the futures market and speculative activities contribute to increased volatility. Western exchanges have also reacted; the CME Group has repeatedly raised security requirements (margins) since December to manage this heightened market volatility.