The silver market has experienced a notable rally recently, with the driving force being highly concentrated—Chinese demand is currently steering price movements, while uncertainty stemming from U.S. tariff policies has marginally amplified market volatility. The price of silver recently surpassed $85 per ounce, reaching a new high in over two months. Concurrently, the Shanghai silver premium has risen again above $10 per ounce, indicating robust appetite for the physical metal in the Chinese market. Andrew Matthews, Head of Global Precious Metals Distribution at UBS, explicitly states that China is currently the sole source of demand for silver, while uncertainty around U.S. tariff policies is creating additional structural confusion in the market. Amid the price strength, UBS precious metals strategist Joni Teves maintains her year-end forecasts unchanged—$6,000 for gold and $100 for silver. The rationale is that the underlying logic supporting precious metals remains intact: continued inflows from retail and institutional investors, and a central bank gold-buying trend unlikely to reverse. **Concentrated Surge in Chinese Demand** This year, China's role in the silver market has undergone a significant shift. Over the past five years, China was a long-term net exporter of silver concentrate globally, but a clear reversal in flow direction emerged in 2026. China's silver imports reached 528 tonnes in March, the largest monthly import volume in nearly two decades, transforming the country from a supplier of the metal into a temporary demand absorber. The concentrated demand surge stems from two directions: first, retail investors are purchasing small-denomination silver bars in large quantities as an alternative to high-priced gold; second, solar manufacturers are stockpiling ahead of the removal of export tax rebates effective April 1. The solar industry consumes approximately one-fifth of the global annual silver supply, with production capacity highly concentrated in China. However, Zijie Wu, an analyst at Jinrui Futures in Shenzhen, expresses reservations about the sustainability of this import boom. He states, "The explosive import volume is certainly unsustainable," and expects future imports to return to normal levels. He adds that given China itself is the world's largest silver producer, there is no long-term supply-demand imbalance in the silver market. **Tightening New York Inventories, Market Structure Becomes Sensitive** Coinciding with the surge in Chinese demand is a continuous decline in New York silver inventories. CME inventories accumulated last year driven by tariff expectations have been gradually drawn down, with metal flow shifting from New York back to London and Zurich, leading to a recovery in LBMA vault holdings. Andrew Matthews points out that the effective delivery buffer in New York has thinned. Once metal leaves New York, bringing it back is not straightforward, increasing the importance of metal origin and customs processing methods. When inventories are ample, these details have limited impact; however, in the current low-liquidity environment, any marginal uncertainty is sufficient to leave a mark on the market structure, rather than being directly reflected in spot prices. This also explains the resurgence in basis volatility, the strengthening of the EFP (Exchange for Physical) premium, and the persistent tightness in the London over-the-counter market. **Misinterpretation Effects of Tariff Policies** Uncertainty surrounding U.S. tariff policies is another factor disturbing current market sentiment, but its impact stems more from market misinterpretation than from substantive changes in the policies themselves. The U.S. does not have a unified tariff code for silver imports; market participants use multiple codes interchangeably, including 7106.91.10 for unwrought metal and 7106.92.1000 for semi-manufactured products. In January this year, a U.S. Customs ruling reaffirmed the semi-manufactured treatment for specific silver bars. However, this ruling pertained to specific transactions and did not alter the overall rules. It merely highlighted again that classification involves subjective judgment, and the risk of reclassification objectively exists. Simultaneously, the statutory four-year review process for U.S. Section 301 actions is underway, with application windows for actions from July and August 2018 extended to July and August this year, respectively. Matthews believes the base case is a quiet conclusion to this review process, but markets often react to uncertainty before outcomes become clear. He also notes that confusion between Section 232 and the critical minerals framework has heightened market caution regarding silver of Chinese origin, although neither provision has actually changed the treatment of silver imports. "The market impact is driven by misinterpretation, not by the policy actions themselves." **Short-Term Strength, but Structural Support Questionable** Synthesizing the above factors, Matthews' short-term assessment is: tight conditions in the over-the-counter market may persist, the EFP will remain volatile, and spot prices have a short-term upward bias. However, he also emphasizes that the fundamental demand picture outside China shows no significant improvement. The current price strength, driven by liquidity mismatches and policy misinterpretation, is more likely to be cyclical rather than structural. The core issues investors need to focus on are: where the metal is stored, whether it can be moved conveniently, and how uncertainties in classification and processing methods affect marginal behavior against the backdrop of a thinned delivery buffer. Joni Teves maintains an optimistic stance from a longer-cycle perspective, believing the theme of diversification remains intact. Continued inflows from retail and institutional funds, along with central bank gold purchases, form the underlying support for precious metals, keeping her forecast for silver to reach $100 by year-end unchanged.
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