Excessive Premium Triggers Demand Destruction, Wall Street Anticipates Return to Downtrend for Silver

After surging 140% last year, the silver price has fallen into a period of fierce volatility, with spot and futures prices both dropping on Thursday, with the spot silver price falling to $71.81 an ounce at one point. This price level is significantly lower than the historical high of $120 per ounce set on January 28th this year. Although the price of silver rebounded after reaching a low of $67.60 per ounce in March and within the year, it has recently entered into a consolidation phase again.

Due to its widespread use in computers, mobile phones, solar panels, and automobile manufacturing, silver's sensitivity to economic cycles is far higher than that of gold. UBS pointed out in a report dated May 22nd, that sustained high prices have caused demand destruction for industrial buyers; as long as the current price levels are maintained, the erosion of demand will continue. Unlike gold, which enjoys stable central bank buying support, silver is not an official reserve asset and thus is more susceptible to fluctuations in private investment and industrial demand, likely to underperform gold in the future.

HSBC analysts also held a bearish outlook on silver in a report published on Thursday, explicitly stating that the metal's fundamentals are overvalued. The institution believes there is very little room for silver prices to rise further and that the gold-to-silver ratio is expected to widen. This means that even if the gold market subsequently sees an increase, silver prices may weaken on their own due to valuation corrections.

Strategists at Macquarie shifted their focus to the macroeconomic level, anticipating that the U.S. central bank will raise interest rates in the first half of 2027, at which point the downward pressure on precious metal prices may be alleviated. In a report released by the institution on May 21st, analysts forecasted that the average silver price will remain near current levels for the rest of the year. However, until the situation in the Middle East is completely resolved, the silver market will continue to experience high volatility, and if macroeconomic conditions further deteriorate, silver will face significant downside risks.