Silver prices are currently hovering below $75 per ounce, showing a lack of upward momentum in the market.
An analyst team from Bank of America assesses that, driven by the gold market, silver prices could potentially surge to $100 per ounce within the year. However, this rally lacks fundamental support and is unlikely to be sustained over the long term. Influenced by multiple factors including declining industrial demand, shifts in supply-demand dynamics, Federal Reserve policy expectations, and North American trade negotiations, silver market volatility is expected to intensify. The medium- to long-term price trend points towards a likely retreat, and the underlying investment rationale is poised to gradually evolve.
Short-term rebound potential exists, but the sustainability of the rise is questionable.
Michael Widmer, head of metals research at Bank of America, led a team in releasing a precious metals analysis report, providing insights into silver's near-term trajectory.
The team indicated that, supported by the momentum in the gold market, silver prices could potentially climb above $100 per ounce in the coming months. However, analysts concurrently clarified that, hampered by a weakening industrial fundamental backdrop, silver cannot consistently outperform gold over an extended period. Looking further ahead, the forecast for the second quarter of 2027 suggests a retreat back to around $75 per ounce, with prices generally returning to a consolidation range.
Weakening industrial demand and a reversal in supply-demand dynamics.
The contraction in industrial demand is a core factor suppressing silver prices.
Persistently high silver prices have significantly compressed manufacturing profit margins, leading various industrial sectors to proactively reduce silver usage or switch to lower-cost alternative materials. Analysts state that silver's industrial demand likely peaked last year. Coupled with a potential slowdown in the growth rate of domestic photovoltaic capacity and a possible decline in annual installations, this further weighs on silver demand. Incremental demand from other sectors is limited and insufficient to offset the overall downward pressure.
Affected by corporate reductions in silver usage and contracting demand, the silver supply-demand deficit is projected to narrow by 90% this year. By 2026, the market was already trending towards balance. Should even minor investor selling occur, silver could transition completely from a supply deficit to a supply surplus, marking a fundamental reversal.
In this context, silver's industrial attributes are gradually diminishing, and subsequent price movements will be increasingly dictated by investment behavior.
Divergence in gold and silver trends; interest rate factors disrupt gold's performance.
Silver's previous outperformance relative to gold was primarily due to five consecutive years of industrial supply deficits, a tight balance expected to extend into a sixth year. Gold, as a non-interest-bearing monetary asset, currently faces downward pressure. The market widely anticipates the Federal Reserve may implement another rate hike this year, raising the opportunity cost of holding gold and capping its upside potential.
The current gold-to-silver ratio stands at 59.43, positioned in the middle of a multi-month consolidation range, highlighting a clear divergence in the performance of the two precious metals.
Industry insiders add that silver's irreplaceable role in the photovoltaic industry means demand is unlikely to experience a cliff-like drop. Furthermore, geopolitical tensions in the Middle East promoting clean energy development offer some minor support for silver. However, these positive forces are weak and insufficient to reverse the overall trend.
Intertwined liquidity and trade risks amplify market volatility.
Localized liquidity shortages in the silver market inherently exacerbate price fluctuations.
Earlier this year, tight physical silver supply, coupled with competition for procurement from both industrial and investment funds, drove prices as high as $120 per ounce. Now, the resumption of North American free trade agreement negotiations presents a new risk point. Canada and Mexico are major suppliers of silver to the United States. Uncertain prospects for trade talks, combined with the lingering effects of past tariff policies, have prompted market participants to hoard inventories, intensifying global physical supply tightness and previously pushing prices back above $80 per ounce.
Concurrently, the scale of physical silver ETFs continues to shrink, and investor willingness to increase long positions in the futures market remains low. The current price rebound is not driven by active fund buying, indicating an unstable foundation for the rally.
Summary
In summary, while silver has short-term rebound potential, declining industrial demand and a reversal in supply-demand dynamics represent long-term concerns. External variables such as Federal Reserve rate hike expectations and North American trade negotiations further amplify market uncertainty, significantly increasing price volatility risk.
Even if silver prices surge to a high within the year, it is likely a temporary phenomenon. The probability of a medium- to long-term return to lower levels remains high. Investors should view this rebound rationally and be wary of the risk of a rapid price decline.