Can silver return to its peak?

Can silver return to its peak?

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After silver touched a nominal all-time high of $121 per ounce in January this year and then nearly halved, HSBC Securities' latest research believes that although silver prices are still fundamentally overvalued, after a significant correction, downside space has become limited. It is expected to decline moderately in the second half of 2026, and long-term average price forecasts have been revised up.

According to Chase Wind Trading Desk, HSBC has raised its 2026 average silver price forecast significantly from $68.25/oz to $75/oz, the 2027 forecast from $57/oz to $68/oz, and the 2028 and 2029 forecasts to $59 and $52, respectively.

The report author, HSBC’s Chief Precious Metals Analyst James Steel, pointed out that silver is currently trading above $85/oz, nearly 30% below its January high. By the end of 2026, the price is expected to further retreat to $70/oz. This upward revision is not a bullish signal, but rather reflects the judgment that the current price is closer to equilibrium compared to the start of the year. It also incorporates a broad fluctuation range—for the remainder of 2026, silver prices are expected to oscillate widely between $68 and $88/oz.

Multiple factors are reshaping the silver market pattern: Middle East conflicts have triggered large-scale capital inflows into the US dollar, high oil prices have heightened concerns over tightening monetary policy; market pricing for a Fed rate cut in 2026 has plunged from over 50 basis points at the beginning of the year to nearly zero; over 200 million ounces of silver have gradually flowed back to the London market from New York, greatly easing extreme liquidity tightness; meanwhile, industrial and jewelry demand continues to be hurt by high prices, and the global supply-demand gap is accelerating its narrowing—from 143 million ounces in 2025 to 73 million ounces in 2026.

From Tariff Panic to Gold Price Ebb: Tracing the Source of this Round of Volatility

The start of this round of silver’s action can be traced back to tariff concerns in Q1 2025. The threat of US tariffs on silver imports triggered a strong rebound, with large volumes of silver shifting from London Bullion Market Association (LBMA) warehouses and Asian storage facilities to New York, causing historic spot premiums (backwardation) in London, CME lease rates soaring over 200%, and the Exchange for Physical (EFP) premium also widening sharply.

On this basis, gold prices approached a historic high of $5,600/oz at the end of January 2026, serving as the core driver for silver’s surge. As a derivative of gold price speculation, combined with supply tightness, tariffs, geopolitics, and economic worries catalyzing safe-haven demand, silver rose to a nominal record high of $121/oz on January 29.

Subsequently, multiple headwinds emerged. The Middle East conflict broke out, the US dollar strengthened, and the stock market slumped, sparking asset sell-offs; Trump announced a pause on new tariffs on key minerals, and the US International Trade Court ruled unfavorably on Section 232 tariffs, eliminating the policy risk premium in silver. Kevin Warsh’s nomination as Fed chair coincided with a repricing in the market, further depressing precious metals prices. Silver plunged in days from $121 to below $64/oz, nearly halving.

James Steel pointed out, CME silver inventories have dropped from a peak of 531.9 million ounces in May 2025 to about 319 million ounces now, returning to normal levels, greatly relieving spot market pressure, with lease rates and EFP levels also falling. Although silver remains listed as a key mineral under the White House's Section 232, the tariff risk has not been completely eliminated, but the market's sensitivity to these threats has decreased significantly.

Supply-Demand Gap is Narrowing, Prices Hard to Stay High

According to an HSBC supply-demand model based on 2026 survey data from the Silver Institute (compiled by Metals Focus), the global silver market supply-demand gap is 143 million ounces in 2025, expected to narrow to 73 million ounces in 2026 and further down to 25 million ounces in 2027.

James Steel believes the narrowing gap is the core reason for his expectation of a moderate decline in silver prices in the second half of 2026 and 2027. On the supply side, mine production is expected to rise slightly from 847 million ounces in 2025 to 848 million ounces in 2026, and to 868 million ounces in 2027; recycled supply is expected to increase from 197 million ounces to 216 million ounces in 2026 and to 222 million ounces in 2027. On the demand side, industrial demand is expected to fall from 657 million ounces to 642 million ounces, jewelry demand will drop sharply to 157 million ounces; ETF holdings are projected to increase by 50 million ounces, and bar and coin demand is expected to recover moderately to 247 million ounces.

Notably, tightness in .9999 high-purity silver may persist, providing some support to silver prices and slightly lifting the more widely traded .9995 standard silver. But in the long term, surface stockpiles and increased recycled supply will gradually suppress prices.

Industrial demand typically accounts for more than half of total silver demand and is crucial for silver prices. After nearly a decade of continuous expansion from 2015 to 2024, this trend reversed in 2025: Although global industrial output grew 2.9% that year, industrial silver demand fell from a record 679 million ounces to 657 million ounces, a decline of about 3%.

Pv (photovoltaic) demand was the main source of this decline, contributing about half of the reduction in industrial demand in 2025. According to BloombergNEF’s 2026 global market outlook, global solar development has entered a low-growth stage. Cost pressures are critical: by early 2026, silver paste and related products accounted for about 29-30% of photovoltaic cell total production costs, compared to only 3-5% in 2021 (according to Kobeissi Letter). The cost surge prompted manufacturers to accelerate substitution of silver with copper and other non-precious metals. Moreover, Q1 2026 global semiconductor sales jumped year-on-year, but the correlation between sales growth and silver consumption is not linear, and electronics capacity expansion was constrained by tariff uncertainty.

James Steel pointed out that although silver prices spiked above $120/oz briefly in January, it has already caused obvious demand destruction. Industrial users expect prices to remain high, and are accelerating reviews and redesigns that could sharply reduce or even eliminate the use of silver in their production processes. HSBC expects industrial demand to fall to 642 million ounces in 2026 and 618 million ounces in 2027.

Jewelry demand is also under pressure. In 2025, silver jewelry demand fell to 189 million ounces, the lowest since the 2020 Covid pandemic, with India’s demand slump mainly due to domestic silver prices surpassing 250,000 rupees/kg. On May 13, India raised its silver import tax from 6% to 15% to counter the rupee’s decline and surging energy imports, further suppressing consumption. The Chinese market grew modestly against the trend, with cultural factors and substitution for high-priced gold jewelry providing some support, but not enough to offset the global decline. HSBC expects global jewelry demand to fall further to 157 million ounces in 2026 and a slight fall to 151 million ounces in 2027; silverware demand will also continue to decline.

Supply Side: Both Mine Production and Recycling Increase

Global silver mine production remains well below the all-time high of 900 million ounces set in 2016. Output in 2025 will rise to 847 million ounces, mainly thanks to Chilean project ramp-ups and higher grades in Peru; Mexico, due to lower grades and operational issues, failed to add output, and Asia's output continues to decline due to disruptions in Indonesia and India. HSBC expects mine production to only slightly rise to 848 million ounces in 2026, with main increments from the US, Canada (driven by Hecla Mining), and Morocco's Zgounder mine expansion; 2027 will see a more obvious jump, to 868 million ounces.

The key bottleneck curbing supply expansion is the extremely long mine development cycle. According to S&P Global data, it currently takes nearly 18 years on average for a new mine to go from exploration to commissioning, up sharply from about 10 years in the early 2000s, with longer times at each stage—exploration, permitting, feasibility studies, and financing. Additionally, about 70% of global silver output comes as a byproduct of gold and base metals mining, structurally constraining the incentive for independent primary silver mine development. Although current global all-in sustaining costs (AISC) for silver are well below market prices and most producers' cost is under $20/oz, making mining highly lucrative even if prices fall sharply, production plans will not be affected.

Growth in recycled supply will be more pronounced. Previously, surging prices actually depressed recycling—as holders were bullish and reluctant to sell, 2025 recycling volume increased just slightly from 194 million to 197 million ounces. As prices retreat from highs, HSBC expects sentiment to shift and recycling volume to jump to 216 million ounces in 2026 and 222 million ounces in 2027. High prices also stimulate greater industrial scrap and electronics recycling, with India and other price-sensitive markets seeing significantly more jewelry recycling flows.

Investment Demand: Slow Recovery in ETF and Futures Positions

Silver ETF holdings jumped by 142.5 million ounces in 2025 to 857 million ounces, the largest single-year gain since the 2020 pandemic, pushing prices sharply higher. However, after the Middle East conflict erupted, investors liquidated large positions to raise cash and cover equity margin calls, dragging ETF holdings down to 790 million ounces, about 8% off the year’s start. HSBC cut its 2026 ETF inflow forecast from 70 to 50 million ounces, expecting some recovery in the second half, mainly driven by expectations of a weaker dollar, heightened geopolitical risk, fiscal imbalances boosting hard asset demand, and low prices attracting value buyers.

CME silver futures net long positions also shrank sharply, from 251.3 million ounces at the start of the year to 202.3 million ounces now. James Steel notes that total short positions now are only 81.62 million ounces, leaving significant room to add shorts, making the market more vulnerable to long liquidation or increased shorts, rather than long buying. ETF holdings and CME net longs combined are about 992 million ounces—more than a year's global mine output—leaving a large overhang and future liquidation risk.

Bar and coin demand is showing signs of recovery. In the first three months of 2026, US Mint silver coin sales surged 57% year-on-year to 8.56 million ounces; institutional demand for large bars in Europe strengthened clearly due to geopolitics and policy uncertainty. However, high prices still constrain retail demand: Germany’s investment interest has been curbed by the removal of some coin VAT exemptions, while retail prices for one-ounce coins in India, with markups, now exceed $85—deterring ordinary consumers. HSBC expects bar and coin demand to climb from 218 million ounces in 2025 to 247 million ounces in 2026, and further to 265 million ounces in 2027, mainly driven by institutional large-bar demand.

US Dollar and Interest Rates: Core Variables Restricting Silver Price Rebound

The sharp reversal in interest rate expectations is the core reason silver has fallen significantly from highs and why future rebounds are capped. The strong rally between late 2025 and early 2026 was largely built on expectations that the Fed would cut rates by at least 50 basis points this year. After the Middle East conflict broke out, high oil prices fueled inflation concerns, and the Fed kept the federal funds target at 3.50–3.75% for the third time at its April 28–29 meeting, with some members even inclined to drop the easing bias; the market has now priced in almost no rate cuts for 2026.

HSBC US economist Ryan Wang expects policy rates to remain unchanged through 2026 and 2027. HSBC believes the Fed would need to see core PCE inflation drop to 3% or even below 2.5% before considering additional rate cuts. Powell has indicated that a “wording adjustment might come as early as the June meeting,” by which time Kevin Warsh is expected to have succeeded as the new Fed chair. His policy stance will be closely watched. HSBC believes that even if rates remain unchanged rather than being cut, this will be a net negative drag on silver prices.

On the dollar, HSBC’s FX research team notes that lately the dollar is mainly dictated by Middle East news: easing tension is negative for the dollar and positive for silver prices; escalation has the opposite effect. This structural constraint means that traditional drivers such as interest rate differentials have temporarily been sidelined. From a longer-term perspective, if the Iran issue is resolved, the dollar may revert to a more defensive stance, though HSBC doesn’t expect a major drop—so only mild support for silver prices. HSBC Chief Global Economist Janet Henry’s team notes, the longer Middle East conflict drags on and the Hormuz Strait remains closed, the greater the supply shock for energy, simultaneously depressing growth and pushing up inflation—which brings two-way risk for the Fed’s next steps and will create a tug-of-war in silver price trends.

 

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The above content is from Chase Wind Trading Desk.

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