Analysts from UBS have indicated in a recent report that the short-to-medium-term upside potential for silver prices will be constrained by declining investment demand, reduced industrial consumption, and increased mine supply. These factors are expected to significantly narrow the silver supply deficit. This assessment from UBS, which downgrades the price outlook for silver, coincides with a sharp reversal in silver futures prices on Thursday. After a week of rapid gains, including a surge of over 4% in the previous session to a two-month high, silver futures experienced a significant sell-off.
On Thursday, silver futures prices plunged, at one point dropping more than 6% intraday. The downturn was driven by a combination of factors: India's sudden increase in gold and silver import tariffs from 6% to 15%, aimed at curbing precious metal imports and easing pressure on foreign exchange reserves; a rebound in the U.S. dollar and longer-dated Treasury yields this week; and rising demand concerns. Both gold and silver prices faced downward pressure on Thursday.
Following a frenzied five-day rally that concluded on Monday, market sentiment had grown increasingly confident about silver's potential to retest its all-time high near $121. However, the market subsequently entered a period of high volatility, culminating in the major sell-off on Thursday, with prices settling around $83 per ounce.
The earlier rapid surge in silver, which saw prices jump nearly 20% over five trading days and break above $80, was fueled by safe-haven inflows due to Middle East geopolitical tensions, optimistic industrial demand narratives around AI data center construction and solar power, and tight supply stories. This rapid price ascent attracted trend-following funds, CTAs, and short-term leveraged capital.
Consequently, when the upward momentum indicators weakened abruptly, and this was compounded by a rebounding dollar, persistently high Treasury yields, and the impact of India's tariffs, silver became more susceptible to a "profit-taking stampede" than gold.
From a short-to-medium-term trading perspective, factors such as high-price demand destruction, a narrowing supply-demand gap, ETF outflows, a retreat in net-long futures positions, India's tariffs, and high real interest rates are likely to limit the pace at which silver can return to its historical highs.
This does not mean silver has lost its long-term investment thesis. Rather, it is transitioning from a phase of "frenzied, short-squeeze-driven gains" to a new stage characterized by "coexisting structural support and cyclical headwinds." Long-term trends like the energy transition, the rapid build-out of AI data centers, recovering industrial demand from electric vehicles, consumer electronics, and traditional industries, along with hard asset allocation and geopolitical risks, continue to provide significant underlying support for silver's price.
**Silver's Rally Hits the Brakes: UBS Warns of Cooling Demand, 2026 Deficit May Shrink Significantly**
UBS senior commodity analysts Wayne Gordon and Dominic Schnider stated in their report, "For 2026, we expect a significant weakening in photovoltaic demand due to high prices; elevated market prices are also suppressing silverware and jewelry demand. Combined, we estimate these channels will reduce demand by approximately 50 million ounces."
The analysts also noted that known global silver ETF holdings have decreased by nearly 70 million ounces to about 794 million ounces, while speculative net-long futures positions have fallen sharply to just over 100 million ounces. These factors led UBS to revise down its full-year investment-grade silver demand estimate from over 400 million ounces to around 300 million ounces.
UBS analysts stated that, considering the year-to-date outflow trend, this estimate "still looks generous." Simultaneously, they significantly narrowed their projected supply deficit for the silver market in 2026 from a previous forecast of 300 million ounces to 60-70 million ounces.
The UBS team wrote, "Consistent with a smaller and narrower deficit, we have lowered our price outlook across all forecast horizons. In our base-case scenario, we expect silver to trade largely sideways, at least in the near term."
UBS sharply cut its Q2-end silver price forecast from $100/oz to $85/oz and lowered its year-end base-case target from $85/oz to $80/oz. Regarding specific silver-related investment strategies, the UBS team expressed a preference for selling volatility over holding outright long positions in silver.
On Thursday, the most-active May Comex silver futures contract for May delivery fell 4.5% to settle at $84.912 per ounce, marking its largest single-day percentage decline since March 26. Meanwhile, the most-active June gold futures contract dipped 0.4% to $4,678.10 per ounce.
**Behind Silver's Plunge: A Triple Squeeze from Dollar, Tariffs, and Narrowing Deficit Halts the "Crazy May" Rally**
The essence of silver's recent sharp decline is a corrective pullback driven by the confluence of fundamental repricing, macro interest rate pressure, and physical demand shocks following an extreme momentum-driven rally.
Previously propelled by Middle East conflicts, rising inflation expectations, safe-haven inflows, optimistic industrial demand, and tight supply narratives, silver's price rose too rapidly in the short term. This attracted trend-following funds, CTAs, and leveraged short-term capital after it broke above $80. Therefore, when upward momentum waned alongside a dollar rebound, sustained high Treasury yields, and the impact of India's tariffs, silver became more prone to a "profit-taking stampede" than gold.
This does not mean silver's long-term logic has completely failed. Instead, it indicates that its short-term trading structure had become overheated, with characteristics like lower liquidity and a high proportion of leveraged capital amplifying the decline.
Core forecasts from financial institutions like UBS point to a key shift: the silver market still faces a deficit, but that deficit is narrowing significantly. The degree of supply tightness is no longer sufficient to support the previous vertical price surge.
UBS slashed its 2026 silver supply deficit expectation from roughly 300 million ounces to 60-70 million ounces and reduced its full-year investment demand estimate from over 400 million ounces to about 300 million ounces. HSBC's quantitative models also show the global silver deficit narrowing from 143 million ounces in 2025 to 73 million ounces in 2026, and further to 25 million ounces in 2027.
In other words, the market is not shifting from "shortage" to "surplus," but from "extreme shortage premium" to "moderate shortage pricing," which is enough to compress silver's near-term upside.
Pressure on the demand side is key to why silver prices struggle to sustain further sharp gains. High prices have already caused substantial demand destruction in photovoltaics, jewelry, silverware, and some industrial applications. UBS explicitly stated that high silver prices will suppress photovoltaic demand and weigh on silverware and jewelry consumption, estimating a reduction of about 50 million ounces from these channels. HSBC added that the sharply increased cost share of silver in photovoltaics is prompting manufacturers to accelerate research into alternative materials like copper, with industrial users redesigning processes to reduce silver usage.
India's hike in gold and silver import tariffs from 6% to 15% further dampens physical consumption, especially for jewelry, investment bars, and retail coins. For silver, the greater risk is not "a lack of industrial demand," but rather price increases that are too rapid, triggering demand substitution, consumption postponement, and policy suppression.
On the supply side, conditions are gradually easing from previous tightness. While mine supply faces structural constraints like long new mine development cycles and silver often being a by-product, modest growth is still expected in 2026-2027. More importantly, recycled supply is highly price-sensitive. HSBC forecasts recycled supply will rise from 197 million ounces in 2025 to 216 million in 2026 and 222 million in 2027.
Concurrently, key factors that previously drove silver prices higher—tightness in the London spot market, soaring CME lease rates, abnormally wide EFP spreads, and New York inventories absorbing global silver—have notably eased. CME inventories have retreated from highs to more normal levels. This indicates the "inventory panic premium" and "delivery squeeze premium" that silver previously enjoyed are fading.
On a macro level, the U.S. dollar and real interest rates remain core variables suppressing a silver rebound. While silver possesses both precious and industrial metal attributes, in the current environment, it remains highly constrained by the dollar, U.S. Treasury yields, and Federal Reserve policy expectations. As Middle East geopolitical conflicts push oil prices and inflation risks higher, financial market pricing for Fed rate cuts in 2026 has fallen from over 50 basis points at the start of the year to near zero, with even some pricing for hikes emerging. If the Fed maintains high rates or adopts a more hawkish stance, the opportunity cost of holding a non-yielding asset will continue to rise.
Consequently, UBS downgraded its silver price forecasts, expecting largely sideways movement and favoring "selling volatility" over holding outright long positions. While HSBC raised its average price forecasts for future years, it also believes silver prices could moderate lower in the second half of 2026, potentially falling back to around $70 per ounce by year-end.
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