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Silver fell sharply after surpassing $80 an ounce for the first time, with traders taking the benefits of a record rally fueled by a structural imbalance between supply and demand.
The white metal fell as much as 5% on Monday, after hitting a record $84 an ounce following five straight days of gains. A weaker dollar and growing geopolitical tensions added to the appeal of precious metals in a year-end surge to all-time highs for silver, gold and platinum.
“Make no mistake: we are seeing a generational bubble in silver,” said Tony Sycamore, market analyst at IG Australia.
Learn more: Why silver rose even more than gold
Silver’s rapid acceleration caps a yearslong rally for precious metals, fueled by heavy central bank buying, inflows into exchange-traded funds and three successive rate cuts by the U.S. Federal Reserve. Lower borrowing costs are a positive for commodities, which pay no interest, and traders are betting on further rate cuts in 2026.
Last week, friction in Venezuela – where the United States blocked oil tankers – and Washington’s strikes against the Islamic State in Nigeria increased the appeal of precious metals. The Bloomberg Dollar Spot Index, a key indicator of the strength of the U.S. currency, fell 0.8% last week, its biggest weekly decline since June. A weaker dollar generally supports gold and silver.
Silver outperforms gold for several reasons. On the one hand, the market is more restricted. Tighter inventory and liquidity that can evaporate quickly; While London’s gold market relies on around $700 billion worth of bullion that can be loaned out in a liquidity crisis, no such reserves exist for silver. This historic supply squeeze occurred in October.
Learn more: Exhausted in India, panic in London: how the silver market collapsed
“The dominant factor of late has been a serious structural imbalance between silver supply and demand, triggering a run on the physical metal,” Sycamore said. “Buyers now pay a remarkable 7% premium for immediate delivery compared to waiting a year. »
London’s vaults have attracted large inflows since the October crisis, but this has led to shortages elsewhere. In China, money kept in warehouses linked to the Shanghai Futures Exchange hit last month the lowest level since 2015.
Additionally, much of the world’s readily available silver remains in New York as traders await the outcome of a U.S. Commerce Department investigation into whether imports of critical minerals pose a national security risk. The review could pave the way for tariffs or other trade restrictions on the metal.
Learn more: Precious metals craze prompts Chinese fund to turn away investors
Unlike gold, silver also has many useful real-world properties that make it a valuable component in a range of products such as solar panels, AI data centers, and electronics. With stocks near their lowest levels on record, there is a risk of supply shortages that could affect several sectors.
This prompted Elon Musk on Saturday to respond to a series of tweets about the supply shortage of saying about: “This is not good. Money is necessary in many industrial processes.”
Technical indicators show that silver’s rally may have been too strong, too fast. The metal’s 14-day relative strength index showed a reading of nearly 80, well above the 70 considered overbought.
Spot silver rose 6% to a high of $84.00 an ounce before collapsing 3.6% to trade at $76.47 as of 8:38 a.m. in Singapore. Gold fell 0.9% to $4,495.73 an ounce, below Friday’s record high of $4,549.92. Platinum and palladium both fell after hitting record highs in the previous session.
