(Kitco News) – Weaker investment demand, softer industrial consumption, and higher mine supply will lower the supply deficit dramatically, which diminishes silver’s potential upside across multiple time horizons, according to the latest silver forecast from strategists at UBS.
“For 2026, we expect weaker demand from photovoltaics due to elevated prices; higher prices are also weighing on silverware and jewelry demand,” UBS strategists Wayne Gordon and Dominic Schnider wrote in a note. “Together, we estimate these channels to reduce demand by about 50mn oz.”
Turning to investment demand, the UBS analysts noted that total known ETF holdings have dropped by nearly 70 million ounces to around 794 million ounces, and net speculative futures positioning has pulled back to just above 100 million ounces.
In response, the bank cut its full-year investment demand estimate from above 400 million ounces to 300 million ounces, which it described as "still generous given year-to-date outflows."
The bank now forecasts silver prices at $85 at the end of Q2 2026, down from their earlier outlook of $100. The September target was also lowered to $85 from $95, the year-end target to $80 from $85, and the March 2027 forecast to $75 from $85.
The revision is based on a reassessment of the market’s overall supply-demand imbalance. UBS now projects the 2026 silver market supply deficit to narrow to roughly 60–70 million ounces, a dramatic reduction from the previous estimate of 300 million ounces.
“Consistent with the smaller deficit, we have trimmed our price outlook across all forecast horizons. In our base case, we expect silver to trade broadly sideways,” the strategists said.
UBS pointed to gold as a stabilizing force that prevented them from projecting even deeper price drops. “We still expect gold prices to trend higher, providing an important anchor for silver,” the strategists said, noting that the correlation between gold and silver prices has increased recently.
The bank expects the gold-silver ratio to move toward around 75–80 over time.
On the supply side, the strategists see a “modestly stronger backdrop,” with mine output expected to reach approximately 850 million ounces.
In terms of strategy, Gordon and Schnider said they continue to favor selling volatility over holding outright long positions. Although implied volatility has come down significantly from earlier this year — when one-month realized volatility nearly reached 150% in February — it remains historically elevated.
"We view selling downside risk to harvest carry over the next three months as attractive," the analysts said.
Silver prices have slid steadily lower on Thursday, with spot silver last trading at $84.688 per ounce for a loss of 3.21% on the daily chart.
