As inflation pressures persist and bond yields climb, both gold and silver prices are under strain, yet the two precious metals have clearly diverged in performance. Gold has managed to hold its key psychological level near $4,000 per ounce, while silver has fallen to a fresh low for the year, briefly approaching $51 per ounce on Friday.
Precious metals research firm Metals Focus noted that weakening investment demand and improved liquidity in the physical market could leave silver facing further selling pressure. In its latest precious metals report, Metals Focus stated that silver continues to lag gold, pushing the gold-to-silver ratio above 76 for the first time since December 2025. By contrast, the ratio had remained in the 60 to 70 range for most of this summer. Although the ratio is still below the 2020-to-2025 average of 82, analysts believe the multiple headwinds facing silver mean the ratio still has room to rise further. So far this year, the gold-to-silver ratio has climbed more than 11%.
Rate Expectations and Energy Shocks Put Greater Pressure on Silver
Metals Focus pointed out that silver is more volatile than gold, and this characteristic amplifies its declines when precious metals broadly come under selling pressure. The war in Iran has driven energy prices higher, intensifying market fears about inflation and further weighing on precious metals performance. The Federal Reserve decided on Wednesday local time to keep rates unchanged, but its policy stance remains tilted toward tightening, with policymakers continuing to prioritize bringing inflation down to the 2% target. According to the CME FedWatch Tool, the market now sees an 80% probability of a 25-basis-point rate hike in December, and expects at least two more hikes in 2027. Rising interest rates and higher bond yields increase the opportunity cost of holding non-yielding assets such as gold and silver.
However, Metals Focus believes gold has been relatively insulated thanks to its monetary attributes and safe-haven demand. Continued central bank gold purchases and allocations by long-term investors seeking to hedge geopolitical and macroeconomic uncertainty have provided support for gold prices. Silver, by contrast, relies more heavily on industrial demand and speculative capital flows, making it more vulnerable to shifts in the economic environment and investment sentiment.
Physical Supply Improves as Investment Funds Continue to Exit
Beyond the unfavorable macroeconomic environment, weakening demand in the physical silver market is also pushing prices lower. Metals Focus noted that the severe liquidity crunch that once drove silver to record highs in 2025 and early 2026 has now largely faded. As of the end of September, silver inventories in London vaults had risen to 932 million ounces, the highest level in nearly four years. More notably, after excluding silver held by physically backed exchange-traded products (ETPs), the inventory available for market trading has increased to about 267 million ounces, nearly double the low seen in October 2025.
At the same time, investment demand has continued to decline. Metals Focus data shows that global silver-backed ETP holdings have fallen by about 60 million ounces this year, releasing silver that was previously locked up in these products and unavailable for market circulation back into the physical market. Analysts said the initial outflows were mainly profit-taking after silver prices hit record highs, but since then investors have lacked sufficient confidence to generate meaningful new inflows. Speculative demand has also cooled markedly, with managed fund net long positions in CME silver futures falling to 17 million ounces, the lowest level since February 2024. Physical silver coin demand has likewise lacked support. A Metals Focus survey of major mints showed that second-quarter sales of major silver coins plunged more than 80% from the first quarter, hitting the lowest quarterly level since the survey began in 2010. Although third-quarter sales rebounded somewhat, they were still 22% below the same period a year earlier.
Industrial Demand Under Pressure, Silver Market May Turn to Surplus in 2027
Metals Focus expects the physical silver market's fundamentals to remain weak for some time. High silver prices will dampen jewelry and silverware consumption, while manufacturers are reducing their use of silver or substituting other materials, with related pressure particularly evident in the photovoltaic sector. With supply rising, investment demand weakening and industrial consumption under pressure, the firm expects this year's global silver market supply-demand deficit to narrow further and potentially shift to a surplus in 2027.
The change in the supply-demand landscape means the likelihood of another large-scale physical supply crunch driving a sharp price spike in the silver market in the near term has diminished somewhat. However, Metals Focus does not believe silver's underperformance relative to gold will last indefinitely. Analysts expect silver's trajectory over the next 12 months to continue to largely follow gold, but in the near term, further rises in interest rates and bond yields could still bring additional downside risk.
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