Silver prices were ignited by an energy decree from Peru, with institutions warning of a pullback risk. Peru issued an emergency decree to address an energy crisis, potentially triggering a supply shock in the global silver market. After a 7% surge overnight, spot silver in London hit a high of $87 per ounce on May 12, reaching a nearly two-month peak. The main COMEX silver futures contract touched $88, but as of 17:00 Beijing time, it turned lower to $85 per ounce, with mixed performance across deferred contracts. In the domestic commodity futures market, the main Shanghai silver contract rose approximately 8% during the session on May 12, climbing to 21,475 yuan per kilogram, and closed at 20,799 yuan per kilogram, up 4.59%. In contrast to silver's strength, gold prices edged slightly lower during the same period, showing little volatility and presenting a rare "weak gold, strong silver" dynamic. As one of the world's top three silver producers, Peru holds a pivotal position in global silver supply. A Shanghai-based trader noted that the supply shock from Peru's energy crisis currently acts only as a short-term sentiment catalyst, and whether it will create a long-term deficit remains to be seen. On the capital front, technical buying provided momentum. Overall, this rally is primarily a pulse-like rebound, with short-term sentiment and capital drivers largely priced in. If there is no stronger follow-through from industrial demand or sustained supply contraction, silver's upside potential is limited, and a retreat from highs warrants caution. The Silver Pulse Rally: Supply Shock-Driven, Amplified by Technical Buying On the news front, Peru announced an emergency decree on May 11, declaring a state of energy crisis due to domestic power supply constraints and limited industrial natural gas quotas. The decree also outlines emergency economic and financial measures to alleviate the national energy crisis. Gu Fengda, chief analyst at Guoxin Futures, analyzed that much of Peru's silver is a by-product of copper mining, and processes like mining, ore dressing, and smelting are highly dependent on energy and power supply. The decree prioritizes residential electricity, exposing industrial power for mines to potential rationing risks, directly impacting global silver supply expectations. Prior to this, silver's fragile supply structure had already laid the groundwork as a "propellant" for this pulse. Data from the World Silver Institute indicates that global silver will face a supply deficit for the sixth consecutive year in 2026, with the gap widening by 15% compared to 2025, further highlighting supply-side vulnerability. Simultaneously, silver demand continues to grow, with its industrial attributes becoming a core pillar supporting prices. Beyond traditional photovoltaic applications, the global push for AI computing infrastructure and new energy vehicles and their supporting facilities also demands significant silver, with limited large-scale substitution by other metals currently possible. "Inventories at both domestic and international exchanges are at multi-year lows, and the tight physical delivery situation persists. Any minor disruption on the supply side could be sharply amplified," Gu Fengda further analyzed. Technically, London silver touched the key resistance level of $85. A sustained break above this could set a medium-term target of $100. On the trading front, technical buying funds moved in and out rapidly. According to Ryan McKay, senior commodity strategist at TD Securities, silver prices have climbed steadily over recent weeks, breaking through technical levels closely watched by traders. This has reignited interest from previously sidelined hedge funds and leveraged investors, while trend-following traders have also joined the momentum. This concentrated capital inflow created a stampede-like wave of buying. Notably, signs of profit-taking emerged following silver's sharp rise. Data from East Money Futures shows that as of press time on May 12, open interest for the main Shanghai silver futures contract stood at 167,798 lots, a decrease of 4.26% from the previous trading day. On the 11th, the top 20 long positions in the main Shanghai silver contract reduced holdings by 2,560 lots, while the top 20 short positions reduced by 263 lots. The net position of the top 20 has been in net long territory recently. The aforementioned trader noted that the scale of long position reduction was significantly higher than that of short positions. The coexistence of net capital inflows and position adjustments suggests a subtle divergence between bulls and bears is emerging. Goldman Sachs previously pointed out that speculative long positioning in silver is currently low. If prices strengthen further, potential momentum-chasing capital entering the market could further amplify upward volatility. Gold-Silver Ratio Compresses, Divergence Emerges On the macroeconomic front, gold and silver are undergoing a rare "decoupling." On May 11, silver recorded its largest single-day gain in months, contrasting with gold's muted performance. The London Gold-Silver Ratio fell below 55, rapidly retreating from a high of 62.05 a week earlier, marking one of the sharpest compressions in recent years. "In the traditional precious metals analysis framework, silver is often seen as 'gold's leverage.' A rising gold-silver ratio indicates relative silver weakness, while a falling ratio reflects silver's relative strength," a precious metals analyst explained. The breach of the psychological 55 level signifies that silver is no longer cheap relative to gold. This signal could attract further capital inflows into silver to chase momentum, or it could prompt the market to reassess whether silver has "overshot." So, how long can this silver rally, fueled by supply-side shocks, geopolitical factors, and technical buying, last? Zhengxin Futures Research Institute analysis points out that SPDR Gold ETF holdings showed continued capital outflows this week, while the SLV Silver ETF saw inflows. The essence of this divergence lies in silver's short-term speculative sentiment being stronger than gold's, aligning with the characteristics of this silver rally. However, a unified bullish consensus across the broader precious metals complex has not yet formed. UBS strategists have lowered their silver price forecast for 2026, revising the year-end target from $85 to $80, and predict prices will move sideways until 2027. The reason is that high silver prices are, in turn, dampening physical demand. Photovoltaic manufacturers are accelerating "silver-thrifting," with solar silver usage expected to plummet 19% this year. Elevated prices are also suppressing demand in silverware and jewelry. UBS thus judges that signs of marginal weakness have emerged on the demand side. Ole Hansen, chief commodity analyst at Saxo Bank, holds a similar view. He believes silver is unlikely to return to its historical highs this year, and the market needs a fresh catalyst to drive prices significantly higher from current levels. Philippe Gijsels, chief strategy officer at BNP Paribas Fortis, is relatively more optimistic. He believes geopolitical conflicts bring volatility to inflation and rates, but core drivers for precious metal price increases—such as international tensions, interest rate cuts, tariffs, and tech sector demand—remain. He expects investors to return to the gold and silver markets as the fog of geopolitical conflict clears. A Zhongcai Futures research report indicates that before clear outcomes emerge from US-Iran negotiations, intertwined geopolitical safe-haven demand and oil-driven inflationary pressures may keep precious metals in a high-volatility consolidation pattern in the short term. In the medium to long term, continued central bank gold purchases, de-dollarization trends, and strategic reserve demand still provide a floor for gold prices. Beyond its precious metal attributes, silver is also underpinned by industrial demand. Overall medium to long-term support for precious metals remains relatively solid.
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