(Kitco News) - The silver market continues to struggle to attract investor interest following its historic price collapse earlier this year; however, one research firm remains optimistic that the precious metal’s long-term outlook remains positive, even as industrial demand weakens and the market moves closer to balance.
In an interview with Kitco News, Philip Newman, Managing Director of Metals Focus, said that despite the significant volatility that has defined the silver market this year, prices have shown remarkable resilience, even as it struggles to hold support at $50 an ounce. Spot silver last traded at $48.58 an ounce, down 6% on the week.
Newman's comments come as Metals Focus, in its latest research for the Silver Institute, forecasts that the global silver market will record its sixth consecutive annual supply deficit in 2026. However, the shortfall is expected to narrow to 35 million ounces, down from 54 million ounces last year.
Although the market remains in deficit, Newman said he expects supply and demand to move closer to balance next year, with the possibility of a small surplus.
Nevertheless, he emphasized that the improving supply outlook does not necessarily undermine silver's long-term investment appeal.
"We are still longer-term bullish [on] gold and silver," he said. “We think the factors out there are still there.”
Newman explained that silver's ability to trade around $50 an ounce is particularly encouraging given the lack of significant institutional investment following January's historic rally and subsequent collapse.
Silver prices surged to a record high of $121.65 an ounce on January 26 before falling sharply as rising bond yields, a stronger U.S. dollar and shifting Federal Reserve interest rate expectations weighed on investor sentiment. Silver prices are down more than 35% from their highs at the start of the year.
Newman said the correction has left many retail investors reluctant to return to the market, while institutional investors have faced additional constraints.
Although those restrictions have gradually eased in recent months, Newman said institutional participation remains relatively limited. However, he sees that as a potential opportunity for the market.
"Where I'm quite encouraged is that gold and silver prices, both of them ... have held up remarkably well with limited institutional exposure," he said. "If we do see some of that return, there is decent room on the upside."
According to Metals Focus, global silver-backed exchange-traded product holdings stood at 1.25 billion ounces as of November 3, down 55 million ounces, or 4%, since the beginning of the year.
The research firm expects net outflows of 45 million ounces for 2026.
Meanwhile, physical investment demand has also weakened. Global bar and coin demand is expected to decline 2% to 215 million ounces this year, with U.S. retail investment falling to its lowest level since 2010.
Despite the weak investment environment, Newman said the broader silver market continues to demonstrate underlying strength.
Newman explained that industrial consumption continues to provide fundamental support, even as manufacturers look for ways to reduce their exposure to elevated prices.
Metals Focus expects total industrial silver demand to decline 3% this year to 640 million ounces. However, consumption remains approximately 22% above 2019 levels.
The biggest weakness is coming from the photovoltaic sector, where elevated prices have accelerated efforts to reduce silver consumption and replace the metal with cheaper alternatives.
Newman estimated that silver demand from the solar industry could decline by roughly 20% this year.
However, he noted that demand outside the solar sector is expected to grow, highlighting the broader strength of industrial consumption.
According to Metals Focus, industrial demand excluding photovoltaics is forecast to increase 4.5% to 492 million ounces in 2026, supported by vehicle electrification, charging infrastructure and other industrial applications.
Newman said the fact that overall industrial demand is declining by less than 3%, despite the sharp drop in solar consumption, is an encouraging development.
One area of important growth potential remains the AI sector and data center buildouts. Although this demand could be smaller than expected, he noted that growth from a relatively small base could still provide meaningful support for the market over time.
While industrial demand remains relatively healthy, Newman said the biggest catalyst for renewed investment interest will likely come from the broader macroeconomic environment.
He explained that investors are waiting for greater clarity on Federal Reserve monetary policy, inflation and geopolitical tensions in the Middle East.
Persistent energy-driven inflation has strengthened expectations that the Federal Reserve will raise interest rates in December, creating significant headwinds for non-yielding assets such as silver.
Newman said a meaningful de-escalation of tensions involving Iran could help ease inflation expectations and reduce pressure on the Federal Reserve to maintain an aggressive tightening stance.
"You don't need peace, but you need expectations of it," he said.
He added that real progress toward negotiations, combined with softer U.S. inflation data, could help restore confidence among precious metals investors.
However, Newman cautioned that uncertainty could persist into early 2027.
Despite these challenges, he said the silver market's ability to maintain historically elevated prices demonstrates its underlying strength.
He noted that although jewelry and silverware consumption have weakened significantly in volume terms, consumers continue to allocate substantial amounts of money to silver products, particularly in India.
Metals Focus expects jewelry demand to decline 22% this year, while silverware consumption is forecast to fall 17%.
Nevertheless, Newman said lower volumes do not necessarily mean consumers have abandoned the market. Instead, many are purchasing smaller and lighter products to accommodate higher prices.
For Newman, the broader message is that silver has weathered an extraordinary period of volatility without losing its fundamental appeal.
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