After nearly halving from its nominal all-time high of $121 per ounce reached this January, silver, according to the latest research from HSBC Securities, remains fundamentally overvalued. However, following a significant correction, its downside appears limited. The bank forecasts a moderate decline in the second half of 2026 and has raised its average price projections for the coming years.
HSBC has substantially increased its average silver price forecast for 2026 to $75 per ounce from $68.25 and for 2027 to $68 from $57. Projections for 2028 and 2029 have also been revised upward to $59 and $52 per ounce, respectively.
James Steel, HSBC's Chief Precious Metals Analyst and the report's author, notes that while silver currently trades above $85 per ounce, it remains nearly 30% below the January peak. He expects the price to retreat further to around $70 per ounce by the end of 2026. This upward revision in forecasts is not a bullish signal but reflects the view that current prices are closer to equilibrium levels than at the start of the year. It also incorporates a wide trading range, with silver expected to fluctuate between $68 and $88 per ounce for the remainder of 2026.
Multiple factors are reshaping the silver market: the Middle East conflict has triggered massive capital inflows into the US dollar, and high oil prices have heightened concerns about tighter monetary policy. Market pricing for Federal Reserve rate cuts in 2026 has plummeted from over 50 basis points at the start of the year to nearly zero. The return of over 200 million ounces of silver from London to New York has significantly alleviated the previously extreme liquidity tightness. Concurrently, industrial and jewelry demand continues to suffer from high prices, with the global supply-demand deficit rapidly narrowing from 143 million ounces in 2025 to an expected 73 million ounces in 2026.
From Tariff Fears to Gold's Retreat: Tracing the Rally and Decline The origins of this silver cycle can be traced to tariff concerns in Q1 2025. Threats of US import duties on silver triggered a strong rebound, leading to large-scale transfers of metal from London Bullion Market Association (LBMA) vaults and Asian storage facilities to New York. This created a historic backwardation in the London market, with CME lease rates surging over 200% and Exchange for Physical (EFP) spreads widening significantly.
Building on this, gold's surge to near its historical high of $5,600 per ounce in late January 2026 acted as the core engine for silver's final ascent. Derivative buying linked to gold's rally, combined with safe-haven demand fueled by supply tightness, tariffs, and geopolitical and economic worries, propelled silver to a nominal all-time high of $121 per ounce on January 29.
Subsequently, multiple headwinds emerged. The Middle East conflict erupted, prompting asset sales due to a stronger dollar and falling equities. The announcement of a pause on new tariffs for critical minerals and an unfavorable US Court of International Trade ruling on Section 232 tariffs dismantled the policy risk premium in silver prices. The nomination of Kevin Warsh as Fed Chair coincided with market repricing, further pressuring precious metals. Consequently, silver plunged from $121 to below $64 per ounce within days, nearly halving in value.
James Steel points out that CME silver inventories have dropped from a peak of 531.9 million ounces in May 2025 to around 319 million ounces, returning to normal levels. This has significantly eased physical market pressure, leading to declines in lease rates and EFP levels. Although silver remains on the White House's Section 232 critical minerals list and tariff risks are not fully eliminated, market sensitivity to such threats has notably diminished.
Narrowing Supply-Demand Gap Limits Sustained Price Gains According to HSBC's supply-demand model, which incorporates the Silver Institute's 2026 survey data (compiled by Metals Focus), the global silver market deficit was 143 million ounces in 2025. It is projected to narrow to 73 million ounces in 2026 and further shrink to 25 million ounces in 2027.
James Steel identifies this gradual narrowing of the deficit as the core rationale for expecting silver prices to moderate in the second half of 2026 and into 2027. On the supply side, mine production is forecast to increase slightly from 847 million ounces in 2025 to 848 million in 2026, rising to 868 million in 2027. Scrap supply is expected to grow from 197 million ounces to 216 million in 2026 and 222 million in 2027. On the demand side, industrial demand is projected to fall from 657 million ounces to 642 million, while jewelry demand is expected to drop sharply to 157 million ounces. ETF holdings are forecast to increase by 50 million ounces, and bar and coin demand is anticipated to recover moderately to 247 million ounces.
Notably, tightness in .9999 fine silver may persist, providing some price support and potentially lifting the more widely traded .9995 standard silver. However, in the long term, increasing above-ground stocks and scrap supply will gradually exert downward pressure on prices.
Industry and Jewelry: High Prices Erode Demand, Trend Hard to Reverse Industrial demand, typically accounting for over half of total silver consumption, is crucial for price direction. After nearly a decade of expansion from 2015 to 2024, this trend reversed in 2025: despite global industrial output growing by 2.9%, industrial silver demand fell approximately 3% from a record high of 679 million ounces to 657 million.
Photovoltaic (PV) demand was the primary driver of this decline, contributing to roughly half of the 2025 industrial demand drop. According to BloombergNEF's 2026 Global Market Outlook, global solar development has entered a low-growth phase. Cost pressure is a key factor: in early 2026, silver paste and related products accounted for about 29-30% of total PV cell production costs, a stark increase from just 3-5% in 2021 (per Kobeissi Letter data). This cost surge is accelerating the substitution of silver with non-precious metals like copper. Additionally, while global semiconductor sales surged year-on-year in Q1 2026, the relationship between sales growth and silver demand is not linear, and consumer electronics capacity expansion remains constrained by tariff uncertainty.
James Steel notes that silver's brief spike above $120 per ounce in January, though fleeting, caused significant demand destruction. Industrial users, expecting prices to remain elevated long-term, are intensifying efforts to review and redesign production processes to significantly reduce or eliminate silver usage. HSBC forecasts industrial demand will decline to 642 million ounces in 2026 and 618 million in 2027.
Jewelry demand is also under pressure. Silver jewelry demand fell to 189 million ounces in 2025, the lowest since the 2020 pandemic, with India being a major source of contraction as domestic prices exceeded 250,000 rupees per kilogram. On May 13, the Indian government raised the import duty on silver from 6% to 15% to counter rupee depreciation and surging energy imports, further dampening consumption. The Chinese market saw slight growth against the trend, supported by cultural factors and substitution for high-priced gold jewelry, but this is insufficient to offset the global decline. HSBC expects global jewelry demand to fall further to 157 million ounces in 2026, dipping slightly to 151 million in 2027, with silverware demand also continuing its downward trend.
Supply Side: Both Mine and Scrap Supply Increase Global silver mine production remains well below the historical peak of 900 million ounces set in 2016. Output rose to 847 million ounces in 2025, primarily due to ramp-ups at Chilean projects and higher grades in Peru. Mexico failed to contribute growth due to grade declines and operational issues, while Asian output continued to decline due to disruptions in Indonesia and India. HSBC expects mine production to increase only marginally to 848 million ounces in 2026, with the main increments coming from the US, Canada (driven by Hecla Mining), and expansion at Morocco's Zgounder mine. A relatively more significant jump to 868 million ounces is projected for 2027.
The core bottleneck limiting supply expansion is the extremely long mine development cycle. According to S&P Global data, it now takes nearly 18 years on average from discovery to production for a new mine, significantly longer than the roughly 10 years in the early 2000s, with delays occurring at every stage from exploration to permitting, feasibility studies, and financing. Furthermore, about 70% of global silver output comes as a by-product of gold and base metal mining, which structurally constrains the incentive for developing primary silver mines independently. Although the global all-in sustaining cost (AISC) for silver production is far below current market prices—with most producers' costs under $20 per ounce—mining remains highly profitable even if prices fall significantly, and production plans are unlikely to be affected.
Growth in scrap supply will be more pronounced. Previous sharp price increases actually suppressed recycling as holders were reluctant to sell amid strong bullish sentiment, with scrap volume only rising slightly from 194 million ounces to 197 million in 2025. As prices retreat from highs, HSBC expects this reluctance to dissipate, forecasting a jump in scrap supply to 216 million ounces in 2026, rising further to 222 million in 2027. High prices also stimulate increased recycling of industrial scrap and electronics, with jewelry recycling flows in price-sensitive markets like India rising significantly.
Investment Demand: Slow Recovery in ETF and Futures Holdings Silver ETF holdings surged by 142.5 million ounces to 857 million in 2025, the largest annual increase since the 2020 pandemic, coinciding with the price rally. However, following the Middle East conflict, investors sold heavily to raise cash and meet equity margin calls. ETF holdings have since fallen to 790 million ounces, down about 8% from the year's start. HSBC has lowered its 2026 ETF inflow forecast from 70 million to 50 million ounces, expecting some recovery in the second half driven by expectations of a weaker dollar, geopolitical risks, demand for hard assets amid fiscal imbalances, and low prices attracting value buyers.
CME silver futures net long positions have also shrunk significantly, dropping from 251.3 million ounces at the start of the year to 202.3 million. James Steel notes that total short positions currently stand at only 81.62 million ounces, leaving substantial room for short increases. This makes the market more vulnerable to pressure from long liquidation or short additions rather than being lifted by new long positioning. Combined ETF holdings and CME net longs total approximately 992 million ounces, equivalent to over a year of global mine production. This large overhang poses a risk of future liquidation pressure.
Bar and coin demand shows signs of recovery. US Mint silver coin sales jumped 57% year-on-year to 8.56 million ounces in the first three months of 2026. Institutional demand for large bars has strengthened notably in Europe due to geopolitical and policy uncertainty. However, high prices continue to constrain retail demand. The cancellation of VAT exemptions on some coins has dampened investment interest in Germany. In India, the retail price for a one-ounce silver coin, including premiums, exceeds $85, deterring ordinary consumers. HSBC forecasts total bar and coin demand to rise from 218 million ounces in 2025 to 247 million in 2026, increasing further to 265 million in 2027, driven primarily by institutional large bar demand.
The Dollar and Interest Rates: Core Variables Constraining Silver's Rebound The sharp reversal in interest rate expectations is the core factor behind silver's steep decline from its peak and a key constraint on any future rebound. The strong rally from late 2025 to early 2026 was largely built on market expectations for the Fed to cut rates by at least 50 basis points this year. Following the Middle East conflict, high oil prices fueled inflation concerns. The Fed held the federal funds target range steady at 3.50-3.75% for the third consecutive meeting on April 28-29, with some members even favoring removing language suggesting an easing bias. Market pricing for 2026 rate cuts has now fallen to near zero.
HSBC US economist Ryan Wang expects policy rates to remain unchanged throughout 2026 and 2027. The bank believes the Fed may need to see core PCE inflation fall below 3%, or even 2.5%, before considering rate cuts. Chair Powell hinted that wording changes "could come as soon as the June meeting," by which time Kevin Warsh is expected to have assumed the role of Fed Chair. His policy stance will be closely scrutinized. HSBC views even unchanged rates, as opposed to cuts, as a net negative drag on silver prices.
Regarding the US dollar, HSBC's FX research team notes recent movements have been primarily driven by Middle East developments: de-escalation weighs on the dollar, benefiting silver, while escalation has the opposite effect. This structural constraint has temporarily overshadowed traditional dollar drivers like interest rate differentials. Over a longer horizon, the dollar may resume a defensive stance after Iran-related issues are resolved, but HSBC does not anticipate a sharp dollar decline, expecting only mild support for silver in the medium term. The team led by Janet Henry, HSBC's Group Chief Economist, notes that the longer the Middle East conflict drags on and the Strait of Hormuz remains closed, the greater the energy supply shock's magnitude. This would simultaneously dampen growth and push inflation higher, creating a two-way risk for the Fed's next moves and leading to continued volatility in silver prices.
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