(Kitco News) - Silver prices continue to experience extreme volatility as the market grapples with significant supply chain issues, with physical supply unable to keep pace with robust demand.
Although silver is holding solid gains above $50 an ounce, strong selling pressure has dragged the price down from its overnight all-time high of $53.62 an ounce. Spot silver last traded at $50.68 an ounce, down more than 3% on the day.
According to several analysts, silver prices are falling sharply as physical metal begins to flow back into the London over-the-counter (OTC) market, easing some supply concerns. However, they also note that even if inventories improve in the short term, the ongoing supply deficit remains a long-term issue for the precious metal.
For many traders, silver’s rally to all-time highs is reminiscent of the 1980s surge, when the Hunt brothers famously attempted to corner the market by purchasing nearly two-thirds of annual production. Much of that silver was bought with leveraged capital, and when regulators introduced new trading rules that heavily restricted the purchase of commodities on margin, silver prices collapsed, ending the Hunts’ run.
In an interview with Kitco News, Nitesh Shah, Head of Commodities & Macroeconomic Research at WisdomTree, said there is a significant difference between today’s silver rally and the one from 45 years ago.
“This rally is based on robust and diverse demand; it's not coming from a single source trying to manipulate the market,” he said. “There is not much that can be done to fix the supply/demand outlook for silver.”
Shah expects industrial demand to continue to dominate the silver market and drive prices higher. According to the Silver Institute, the silver supply deficit is forecast to reach around 187.6 million ounces, the third-largest deficit on record.
In his latest price forecast, Shah said he expects silver prices to rise to $56 an ounce by September 2026. He added that, given the market’s current momentum, there is significant upside risk to prices through 2026.
Shah noted that silver’s industrial consumption could increase significantly by the end of the year if it is officially recognized as a critical metal by the United States. In August, the U.S. Geological Survey added silver to its 2025 draft list of critical minerals, citing its growing importance in the electrification of the global economy.
The list is expected to be finalized before the end of the year.
At the same time, alongside robust industrial consumption, Shah said the ongoing trade war is further complicating the marketplace, adding to silver’s volatility and bullish momentum. He explained that the threat of U.S. tariffs on the precious metal is keeping inventories in New York elevated.
Although silver is currently not subject to tariffs, there are fears that this could change if it is reclassified as a critical metal.
“Silver flooded into New York because everyone wanted to avoid the tariffs. It would take some really juicy margins to move most of that metal back to London,” said Shah. “Ultimately, I don’t think silver will be tariffed because that would be a kick in the teeth for the COMEX and impact its ability to be an international exchange. But even if there is only a small possibility that the metal is taxed, it is too important for the economy for anyone to take that chance.”
Shah added that, in this environment, until there is greater clarity in the marketplace, London’s physical market will remain tight and in backwardation, with higher lease rates.
He also said that the biggest risk for silver would be a global recession that could weaken industrial demand. However, with the Federal Reserve expected to cut rates later this year and through 2026, he sees a recession as unlikely.
Instead, Shah said slow but steady growth, coupled with higher inflation, is more likely to support silver prices through next year.
