Silver's Rollercoaster Ride: Plunges After Seven-Day Rally, When Will It Recover?

Spot silver prices plummeted over 9% this Friday. On May 15th, silver prices opened higher and closed lower for a second consecutive day. By the close, spot silver was trading at $75.894 per ounce, down 9.03%. COMEX silver futures fell more than 10%. Domestically, the main Shanghai silver futures contract plunged 10% during the day session on May 15th and dropped another 6.79% in the night session, settling at 18,889 yuan per kilogram. Gold also performed poorly, though its decline was smaller than silver's. By the close on May 15th, spot gold was at $4,539.39 per ounce, down 2.37%; COMEX gold futures closed down 3.02%.

Since hitting a historic high of $121 per ounce in January this year, silver prices have fallen nearly 34%, with a maximum drawdown approaching 50% during this period. Before the sharp drop over the last two trading sessions, spot silver had rallied for seven consecutive days, once surging to near $90 per ounce, leading markets to briefly hope for a return to $100.

Why did silver prices plunge? In the first half of the week, prices surged sharply due to market concerns about reduced silver supply following Peru's declaration of an energy crisis emergency decree. Entering the latter half of the week, prices fell for two consecutive days, with a cumulative decline exceeding 13%. Amidst the intense volatility, the Shanghai Futures Exchange announced on May 15th that it would adjust the trading parameters for the silver AG2705 contract, setting the daily price limit at 17%, margin requirements for hedging positions at 18%, and margin for speculative positions at 19%.

Regarding the sudden sharp decline in silver prices, analyst Bai Suna from Guomao Futures attributed the core triggers to rising expectations for tighter monetary policy and higher overseas bond yields. "Recent data showed U.S. April CPI and PPI rebounding more than expected across the board, refocusing market attention on the previously ignored risks of high oil prices and inflation," Bai Suna said. "The market is concerned that under high U.S.-Iran geopolitical uncertainty and the continued blockade of the Strait of Hormuz, persistently depleting global crude inventories could keep oil prices elevated for an extended period, further fueling inflation risks. This presents a significant challenge for the incoming Fed Chair Kevin Warsh and increases uncertainty around Federal Reserve monetary policy." On May 15th local time, Jerome Powell officially stepped down as Fed Chair, succeeded by Kevin Warsh. Pricing in U.S. interest rate futures markets indicates that traders now see over a 50% chance of a Fed rate hike by or before January next year. Everbright Futures believes that inflation and rate cut issues will undoubtedly pose a major test for Warsh upon taking office. The market is focused on his first official statement, and ahead of that, funds are taking profits and reducing positions for safety, leading to the sharp, high-volume sell-off in silver.

Simultaneously, soaring yields on U.S., European, and Japanese bonds have further intensified global liquidity tightening. Bai Suna pointed out that the 10-year U.S. Treasury yield broke above 4.5%, and the 30-year yield crossed the key 5.0% threshold. Political turmoil in the U.K. pushed British gilt yields higher, with the 30-year yield hitting its highest level since 1998. Japan's 10-year government bond yield rose to 2.7%, a 29-year high. The rise in global risk-free rates has significantly increased the holding cost for precious metals. Xia Yingying, head of the precious metals and new energy research group at Nanhua Futures, also stated that the rise in the U.S. dollar index and Treasury yields directly increases the opportunity cost of holding silver and other precious metals, becoming a key driver of the market weakness.

Policy and geopolitical factors have exerted additional downward pressure on silver. On the news front, India, to ease pressure on its foreign exchange reserves, raised import duties on gold and silver from 6% to 15% and tightened restrictions on precious metals imports. Bai Suna believes this move could impact precious metals demand in the short term, also weighing on silver prices. Geopolitically, U.S.-Iran negotiations have reached a stalemate. According to a CCTV News report on the 15th, Iran stated that the U.S. has rejected Iran's written "14-point" proposal to end the war. As navigation risks in the Strait of Hormuz continue to simmer, high oil prices are fueling elevated inflation, exacerbating Federal Reserve policy uncertainty. Marex analyst Edward Meir said, "The stalemate in the U.S.-Iran conflict is not progressing, and we see crude oil prices continuing to rise, which further reinforces the inflation narrative and is very negative for the precious metals market."

Institutions Lower Price Targets, Short-Term Pressure Expected Looking ahead, and , along with several domestic futures firms, generally agree that the silver supply deficit is continuing to narrow, demand is gradually weakening, and short-term market pressure may persist. However, medium-to-long-term industrial rigid demand and macro support have not disappeared. On the supply side, the ongoing narrowing of the global silver supply deficit is a key constraint on sustained price increases. forecasts the global silver supply deficit will shrink from 143 million ounces in 2025 to 73 million ounces in 2026, and further contract to 25 million ounces in 2027, due to increased supply from mines and recycling channels. James Steel, chief precious metals analyst at , stated, "We believe a modest supply-demand deficit is not sufficient to drive a significant and sustained rise in silver prices over a longer period." senior analysts Wayne Gordon and Dominic Schnider also lowered their expectations in a research report, revising down the 2026 silver supply deficit from a previous 300 million ounces to 60-70 million ounces.

On the demand side, data shows industrial demand accounts for over half of total silver consumption. This demand has already fallen to 657 million ounces in 2025 from a record 679 million ounces the previous year. The bank expects this trend to continue, forecasting industrial silver demand to drop to 642 million ounces in 2026 and further to 618 million ounces in 2027. Regarding jewelry demand, expects this year's silver jewelry demand to fall to 157 million ounces from 189 million ounces in 2025. "For 2026, we expect demand from the photovoltaic sector to weaken due to high prices; similarly, high prices are also suppressing demand for silverware and jewelry. Overall, we estimate these channels will reduce demand by about 50 million ounces," said strategists Wayne Gordon and Dominic Schnider. Regarding investment demand, total known ETF holdings have decreased by nearly 70 million ounces to about 794 million ounces, while net speculative futures positions have also retreated to just over 100 million ounces. Consequently, lowered its full-year investment demand forecast from over 400 million ounces to 300 million ounces, calling this expectation "still generous considering the fund outflows year-to-date."

Xia Yingying believes that silver's dual nature—industrial (for photovoltaics, AI computing, 5G, etc.) and financial—makes its volatility inherently higher than gold's. The high volatility of investment demand, which reflects its financial attribute, also means silver and gold prices are primarily driven by investment flows and exhibit synchronized trends. However, high prices may accelerate the global development of "silver-reduction" technologies in photovoltaics (like silver-coated copper, electroplated copper), indicating constraints on silver price increases. The current copper-to-silver ratio is at a historically medium-to-high level, suggesting silver's valuation relative to copper has already partially priced in industrial demand expectations.

As a result, predicts silver will reach $85 per ounce by the end of the second quarter of 2026, lower than its previous forecast of $100. Its September target price has also been lowered from $95 to $85, its year-end target from $85 to $80, and its March 2027 forecast from $85 to $75. , meanwhile, raised its silver price forecasts, now expecting an average price of $75 per ounce in 2026 and $68 in 2027, up from previous forecasts of $68.25 and $57, respectively. Despite the upward revisions, maintains a cautious medium-term outlook, warning that the shrinking supply deficit and weakening industrial and jewelry demand limit the potential for sustained price increases. The bank set its year-end target prices for silver at $70 per ounce for 2026 and $65 for 2027.

Bai Suna expects that in the short term, silver prices may continue to face periodic pressure due to high geopolitical uncertainty, rising expectations for monetary policy tightening, and liquidity constraints. However, from a medium-to-long-term perspective, once geopolitical tensions ease and Federal Reserve monetary policy becomes relatively clearer, weakening the macro headwinds, silver is still expected to resume a fluctuating upward trend. The main support stems from the enduring medium-to-long-term bullish factors for precious metals in the context of de-dollarization, coupled with the rigid industrial demand for silver in sectors like photovoltaics, new energy, AI, and semiconductors. This is expected to provide a bottom support for silver prices around the $70-$75 per ounce range.