After a long period of calm, volatility has returned to the silver market. Silver surged to a two-month high, rallying more than 20% from its May lows in just a week. However, concerns over tighter monetary policy and rising bond yields have since put pressure on prices.
Of course, the current fluctuations cannot be compared to what we saw in January, when a 35% drop occurred in a single day. Investors felt that the rally had gone too far. However, the situation does not yet look like a classic bubble burst, as silver prices are still 130% higher than a year ago, which is suppressing global demand. UBS estimates a 50 million-ounce decline this year, allowing the bank to lower its price forecast from $100 to $85 per ounce by the end of the second quarter.
High prices are forcing not only jewellers but also industrialists to seek alternatives for silver. There has been some success in replacing it with copper in the manufacture of solar panels. This sector accounts for a fifth of global supply. Due to the fall in global demand, the 46.3-million-ounce deficit forecast by the Silver Institute for 2026 may prove smaller, putting pressure on the price per ounce.
Silver is also facing weaker investment demand. Rising global bond yields and a stronger US dollar are putting pressure on the metal. UBS reports that speculative interest has fallen sharply, while silver ETF holdings have dropped by 70 million ounces since the start of the year, to 794 million ounces.
De-escalation in the Middle East could turn the tables. Oil, the US dollar and Treasury yields would fall, which would be positive for silver. However, as long as the Strait of Hormuz remains blocked, it remains under pressure.
The silver market is relatively small compared to gold, which makes it more vulnerable to speculative trading. This often leads to sharper price moves in both directions.
