(Kitco News) - The silver market continues to hold its ground above $58 an ounce, and while the market could see some volatility at these elevated levels, one analyst says it remains well supported and still has plenty of upside potential.
In his latest comments on silver, Ole Hansen, head of Commodity Strategy at Saxo Bank, said that the precious metal’s surge reflects a deep and widening disconnect between physical availability, a favourable macro backdrop, and a market structure exposed to a squeeze.
“Unless physical conditions meaningfully loosen — a scenario that looks unlikely near-term — silver’s repricing appears to be a rational response to a multi-year tightening cycle finally reaching its inflection point. Silver is no longer trading a story of potential tightness. It is trading the reality of it,” he said in the note.
Spot silver last traded at $58.17 an ounce, up 0.42% on the day. The precious metal continues to see solid follow-through buying following Friday’s breakout rally. So far this year, silver prices are up more than 100%, marking their best annual run since 1979.
A major factor behind silver’s rally this year has been significant supply-chain issues. The year began with massive amounts of silver flowing into America as bullion banks and market participants built a substantial stockpile to avoid potential tariffs from President Donald Trump.
Hansen noted that silver’s parabolic rally began in October as supply-chain issues finally came to a head and physical demand in London’s over-the-counter market emptied already diminished stockpiles. During the month, lease rates for physical metal rose to record highs, indicating severe supply tightness.
“This is the type of market where price becomes secondary; the priority becomes securing any available ounces,” said Hansen.
In recent weeks, silver’s supply-chain issues have migrated east to China. Hansen noted that exchange-monitored silver stocks in Shanghai have plunged to their lowest level in a decade.
Meanwhile, stockpiles in America have remained relatively untouched. Although the precious metal has not been tariffed, there is still significant uncertainty in the marketplace as it is now seen as a critical industrial metal. Although silver is not tariffed as a monetary metal, there are growing fears it could be taxed as an industrial metal.
Hansen noted that not only is silver’s dwindling stockpile squeezing the physical market, but the perfect storm has also hit speculative investors, who appear to have been caught short. Trade data from the Commodity Futures Trading Commission has been affected by the U.S. government’s 43-day shutdown; only a limited number of reports have been released so far.
“The CFTC has so far released data up to 14 October, giving us an opportunity to gauge managed money positioned in gold and silver as both metals pushed toward their 21 October peaks, before correcting 11.3% and 15.4% respectively. The strong rally from mid-August triggered long liquidation from leveraged funds such as hedge funds as they reduced exposure to maintain an unchanged value at risk. Data up until 14 October showed managed money accounts cutting their net long in COMEX gold futures for a sixth consecutive week, reducing the position to a 19-month low of 110k contracts,” said Hansen. “Silver showed a similar pattern, with funds trimming longs for a third consecutive week to a six-month low near 25k contracts. If that behaviour extended into the subsequent correction, it suggests this investor group entered the latest rebound with minimal exposure — potentially even net short — leaving them poorly positioned for the sharp recovery seen during the past two weeks.”
Looking ahead, Hansen said that investment demand — including physical demand — remains well supported as the Federal Reserve is expected to continue cutting interest rates through 2026. Expectations heading into the Federal Reserve’s monetary policy meeting next week have also shifted, with markets nearly fully pricing in a rate cut.
“The Federal Reserve’s pivot toward a lower-rate trajectory has and will continue lowering the opportunity cost of holding a non-yielding asset like silver. With markets now expecting multiple cuts, starting this month and continuing through 2026, the monetary backdrop has shifted decisively in favour of hard assets,” said Hansen. “Persistent fiscal deficits, a softening labour market and renewed discussions about long-term debt sustainability have strengthened investor appetite for hard assets. The current rally is no longer dominated by retail enthusiasm, with institutional buyers — particularly macro funds and family offices seeking to hedge against slow-moving but entrenched inflationary pressures, and the risk of a debt spiral.”
At the same time, Hansen said that silver’s industrial demand will continue to provide a resilient floor for prices.
