Volatility exceeds 100%, eleven plunges in one month—when will silver stop bleeding?

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The recent sharp fluctuations in the silver market are eroding investor confidence, with volatility soaring above 100%, and the market is eager to find a price bottom. UBS warns that extreme volatility makes short-term positioning extremely risky, but the long-term fundamentals remain intact.

On Friday, spot silver prices plunged by as much as 10%, but then regained lost ground, rising more than 2% to $73/oz. Silver futures fell more than 5% to $72.34/oz. Earlier this year, silver prices hit a historic high, but last Friday suffered a single-day plunge of nearly 30%, and have since been unable to regain their footing.

UBS noted in a report released late Thursday that the recent plunge is more driven by risk-averse sentiment rather than a collapse in fundamentals. However, the bank emphasized that with one-month silver volatility now exceeding 100%, there could be sharp price swings in the short term. UBS also warns that without sustained investment demand, silver will struggle to stay above $85/oz.

According to Refinitiv data, since the beginning of this year, silver has posted 11 instances of single-day price swings of 5% or greater. This frequent and drastic two-way volatility has led institutional investors to hold divergent views on the short-term outlook for silver.

High Short-Term Positioning Risk

UBS strategists said that given the current extreme volatility, the bank does not see building a long-term silver position at current price levels as attractive.

With one-month volatility near 80%, silver options prices have surged, creating opportunities for investors to profit by betting on a price bottom rather than further gains. UBS believes that betting on silver remaining above roughly $65/oz looks more appealing in the near term, reflecting the view that while prices may be volatile, a deep short-term drop below this level is unlikely.

Nicky Shiels, head of research at MKS Pamp, said that silver's recent performance bears little resemblance to past bull markets driven by physical supply constraints. "Silver indeed has been labeled like meme stocks or commodities due to its excessive volatility," said Shiels, adding that while silver's absolute price is not cheap, expansion in retail channels has amplified speculative flows. She expects silver to digest the excesses from the recent rally in the coming weeks rather than rebound immediately, with prices possibly dropping to $60/oz.

Long-Term Fundamentals Supported

Despite maintaining caution in the short term, UBS believes silver's long-term fundamentals remain intact:

"Lower nominal and real interest rates, concerns about global debt and dollar depreciation, as well as our expectation for global economic growth to recover in 2026, should drive prices higher."

UBS continues to estimate a nearly 300 million-ounce deficit in the silver market this year, with investment demand expected to exceed 400 million ounces. However, the bank cautions that elevated prices may dampen industrial demand.

Vasu Menon, Managing Director of Investment Strategy at OCBC Bank, insists that although market sentiment has taken a hit recently, the structural investment logic for silver still holds for investors who can stomach the volatility. Menon noted that silver's hybrid attributes often make it susceptible during periods of intense risk aversion.

"Silver can be seen as a hybrid asset, with characteristics of a precious metal, an industrial metal, and speculative elements," Menon said. "It may appear to be a meme asset, especially during large influxes of retail capital, but it’s important to remember its fundamental drivers."

Menon's long-term target price for silver is $134/oz, which he expects to reach in March 2027. Silver is widely used in solar energy, catalysts, electronics, and a range of industrial and technological fields.

Risk Warning and DisclaimerMarkets have risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the special investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular situation. Investments made accordingly are at your own risk. ```