Silver under pressure at high levels! Bank of America calls for a target price of 100 USD but warns that the rally may not be sustainable. The "de-silverization" of the photovoltaic industry has become the biggest hurdle.

This week, the international precious metals market continued to show weakness. As of Wednesday, gold futures fell for the third consecutive trading day, with silver futures experiencing a more significant decline. The settlement price of COMEX May silver futures on the same day was $74.599 per ounce, plummeting 2.2%, marking the lowest closing level since May 5th. Since the outbreak of the Iran conflict, the overall trend of precious metals has been under pressure, stemming from the substantial blockade of the Strait of Hormuz driving oil prices soaring, thereby fueling inflation concerns and strengthening market expectations of a Fed rate hike. Although the short-term trend of silver is weak, there has been a significant divergence in Wall Street banks' outlook on its future direction. The commodity team at Bank of America gave a "rise before fall" analysis in its latest research report - led by the head of metal research, Michael Widmer, the team maintained an optimistic outlook, believing that silver prices are likely to reach $100 per ounce in the fourth quarter of 2026. However, Bank of America also issued a clear warning: this round of rally may be "short-lived" and lack sustainability. The bank expects that with the structural decline in industrial demand, silver prices will fall back to around $75 per ounce by the second quarter of 2027. It is worth noting that Bank of America's outlook is more optimistic than that of its peers, but it also leaves room for a downside. In a previous research report, UBS significantly lowered its price target for silver to $85 by the end of the second quarter of 2026, with the year-end target reduced to $80 and the forward target for March 2027 lowered to $75. UBS strategists pointed out that there will be a fundamental change in the supply and demand situation for silver in 2026, with the supply deficit shrinking sharply from the previously estimated 300 million ounces to just 60-70 million ounces. This "cliff-like" contraction is the root cause of the waning upward momentum of silver prices. A previous report from the World Silver Association also confirmed this trend, projecting a global silver market deficit of approximately 67 million ounces in 2026, the sixth consecutive year of shortage, but the scale has significantly narrowed. Wave of "de-silverization" hits, peak demand in the photovoltaic sector In the view of Bank of America, the biggest structural resistance facing silver comes from the wave of "de-silverization" in the industrial sector. "While rising gold prices may once again push silver above $100 per ounce in the coming months, we believe silver will not continue to outperform gold due to weakening basic demand," Bank of America analysts wrote in their report. The bank further pointed out that the high prices are forcing manufacturers in key industrial sectors - especially in the CECEP Solar Energy photovoltaic industry - to actively reduce their use of silver, or even switch to cheaper metals such as copper as substitutes. As the largest industrial demand sector for silver today, photovoltaics accounted for 35% of global industrial silver consumption in 2025. However, with the penetration rate of N-type high-efficiency cells such as TOPCon and HJT rapidly rising to 70%, the consumption of silver per watt has increased significantly, with silver paste costs accounting for more than 50% of the non-silicon costs of some high-efficiency cell components. The high price of silver is putting significant pressure on the profitability of photovoltaic manufacturers, forcing companies to accelerate the process of "de-silverization". "We believe that due to multiple factors, industrial demand for silver peaked last year, including strong willingness among manufacturers to reduce silver usage in processes. The slowing growth of China's CECEP Solar Energy photovoltaic capacity and a potential decline in global CECEP Solar Energy installations this year only add to these headwinds," Bank of America analysts said. Shift in demand, change in price logic With industrial demand eroded by high prices, the supply and demand balance of silver may quickly change. Bank of America analysts warn that with the decline in industrial consumption, the high price of silver is likely to push the silver market back into a situation of oversupply. With silver prices previously experiencing nearly exponential growth, market participants, especially manufacturers of photovoltaic components, are facing significant profit margin pressures. This has greatly encouraged companies to make efforts to "de-silverize" in their processes. A reduction in usage means that the supply deficit for silver this year could be significantly reduced by 90%, to the extent that even a slight sell-off by investors could lead the market directly into a surplus situation. UBS also pointed out similar logic in its report. Demand is facing triple pressure: waning silver demand in photovoltaics due to high silver prices, subdued consumption of silver jewelry and silverware due to high prices, and a significant cooling in investment demand - global silver ETF holdings have flowed out nearly 70 million ounces in total. In this structural transformation, Bank of America believes that the pricing of silver is changing and may be closer to the logic of precious metals in the future, rather than simply an industrial commodity. "Investor demand may be a key driver of future price movements," the report emphasized. Multiple risks entwined, short-term volatility remains In addition to the medium to long-term structural negative of "de-silverization," the silver market is also facing multiple uncertainties in the short term. Firstly, the path of the Federal Reserve's policy remains a core variable. Market expectations for a Fed rate hike this year continue to rise, with estimates of a more than 50% probability of a rate hike in 2026. The introduction of the new Fed Chairman, Jerome Powell, by former President Trump has sparked concerns that his initial official stance may be more hawkish in the face of higher-than-expected inflation, thus weighing on non-yielding assets such as precious metals. Traders are closely watching the US Personal Consumption Expenditures (PCE) Index data for April, which will be released on Thursday, for further clues on the rate path. Secondly, geopolitical tensions are affecting market sentiment. The US military launched a "defensive strike" in southern Iran on Monday, targeting missile launch sites and Iranian ships attempting to lay mines. Iran announced the shooting down of a US drone and fired to drive off warplanes. Analysts see the actions of both sides during the ceasefire as part of a negotiation game of "maximum pressure". Iranian state television recently stated that the country will restore shipping in the Strait of Hormuz to pre-war levels within a month under a framework agreement with the US, which also includes the withdrawal of US troops from around Iran. If the agreement is reached and the strait reopens, a drop in oil prices could help ease inflation pressure, providing breathing room for silver; on the other hand, an escalation of geopolitical risks would further complicate an already complex macro situation. Moreover, the North American Free Trade Agreement (NAFTA) negotiations are also seen as a potential "black swan". Canada and Mexico are the largest suppliers of silver to the US, and the uncertainty in trade policy has prompted market participants to maintain incredibly high inventories within the US, tightening global available supply, and a lack of liquidity could further amplify price volatility. Silver is currently facing the tug-of-war of multiple forces. In the short term, developments in the Iran situation and signals from the Federal Reserve will continue to dominate silver price movements, and the ability of gold prices to lead will also be a key variable. In the medium to long term, the substitution effect of high silver prices on industrial demand may fundamentally reshape the pricing logic of silver. As Bank of America points out, photovoltaics will remain the core demand pillar for silver, but the direction of "de-silverization" is difficult to reverse - this may mean that even if silver prices return to the $100 level in the future, its foundation is quietly weakening.