(Kitco News) - After an unprecedented run to record highs, silver is seeing significant selling pressure as it looks to end Friday well off its highs.
After hitting an overnight peak of $54.485 an ounce, spot silver has dropped nearly 5% and is currently trading at $51.70 an ounce. Despite what some analysts have described as expected profit-taking, silver is still on track to end the week in positive territory, with a nearly 3% gain.
However, for one research firm, Friday’s correction could mark the start of a larger downward move. In a note published Thursday, Roukaya Ibrahim, Chief Strategist at BCA Research, warned investors that silver prices have moved too far, too fast.
Ibrahim noted that spot silver has been driven to record highs partly because of limited liquidity in the physical Over-the-Counter (OTC) markets stemming from ongoing supply chain issues.
Growing demand for physical silver has depleted vaults associated with the London Bullion Market Association (LBMA), while vaults in New York are brimming with silver. Analysts note that the metal has remained in New York as bullion banks fear potential tariffs due to silver’s significant industrial applications.
However, the higher spot premium over CME futures prices has started to attract some of the metal back to London, narrowing arbitrage opportunities.
Ibrahim warned that commodity rallies driven by short squeezes rarely end well.
“The history of commodity short squeezes sends a warning for silver. Price surges spurred by short squeezes in various commodities could last for a while but have often been followed by a rapid reversal,” she said. “The sharp rally unwinds relatively quickly, and those commodity prices remain below the short squeeze peak over the course of the six months following the surge.”
Along with unstable fundamental support, Ibrahim said silver’s technical picture shows a market that is overextended.
“[The price] currently stands 43% above its 200-day moving average support line – nearing elevated readings that in the past were followed by price drawdowns. Similarly, at 85, silver’s relative strength index is warning that the metal is overbought,” she said. “From a fundamental perspective, even though silver’s demand outlook is positive, the price’s extraordinary surge means that the metal has gone too far, too fast and is due for a near-term pullback.”
Ibrahim added that America’s ongoing global trade tensions could continue to provide some support for silver. 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 was expected to be updated later this month, but that deadline is now uncertain due to the current government shutdown. The official list is expected to be published before the end of the year.
“To the extent that the risk of US tariffs on silver is still in play, it will continue to incentivize silver stockpiling in New York. That could limit the movement of global silver inventories to London, which is needed to ease the shortage,” she said. “In that sense, a conclusion of the US Section 232 Investigation could be the trigger for a price reversal in both London and New York.”
