Silver Faces Further Downside as Analysts Warn High Prices Are Destroying Demand

Silver’s explosive rally over the past year may now be turning into a headwind for the precious metal, as elevated prices begin to discourage industrial buyers and reduce overall demand.

After surging roughly 140% in 2025, silver prices have become increasingly volatile, prompting analysts to warn that the market may have entered a phase of demand destruction. The metal’s broad industrial use — spanning electronics, solar panels, automobiles, and consumer devices — makes it far more sensitive to economic conditions than gold.

UBS analysts said high prices are already eroding demand across multiple industries and warned that the trend could continue as long as silver remains expensive.

“The demand erosion is likely to persist as long as prices remain at current levels,” UBS wrote in a research note published in May.

The bank also noted that silver lacks one of gold’s key structural advantages: strong central bank demand. While gold continues to benefit from official sector buying and reserve diversification, silver has no comparable strategic demand base.

“Silver is more vulnerable to shifts in private investment and industrial demand, and is likely to lag gold,” UBS analysts added.

The bank said silver currently offers an unattractive risk-reward profile for investors because of its extreme volatility and weakening industrial fundamentals.

Silver prices reached a dramatic peak on January 28, when the metal briefly surged above $120 per ounce before collapsing nearly 30% in a single trading session. Although prices later recovered partially, they remain significantly below pre-Iran war levels.

Spot silver and silver futures rebounded toward $87 an ounce in May before another selloff pushed prices back into the $75 to $78 range over recent weeks. On Thursday, spot silver traded around $72.13 per ounce, down 3.7%, while U.S. front-month silver futures also declined by a similar amount.

HSBC analysts described silver as “fundamentally overvalued,” warning that the metal may increasingly diverge from gold’s trajectory.

“We believe further room to the upside is limited as silver remains overvalued,” HSBC analysts wrote.

The bank expects the gold-to-silver ratio to widen further, meaning silver could weaken even if gold prices continue rising amid geopolitical uncertainty.

Macquarie analysts also expressed caution on the outlook for silver, citing ongoing instability in the Middle East and the potential for tighter monetary policy in the United States.

The bank expects the Federal Reserve to raise interest rates during the first half of 2027, a move that could place additional downward pressure on precious metals by strengthening the U.S. dollar and increasing the appeal of interest-bearing assets.

“Volatility will remain until the situation in the Middle East is resolved, with meaningful downside risk if the macro situation deteriorates further,” Macquarie analysts wrote in a note.

The outlook highlights the increasingly difficult environment facing silver markets. While geopolitical tensions and inflation concerns continue to support safe-haven demand for precious metals broadly, silver’s heavy reliance on industrial consumption is making it more vulnerable to slowing economic activity and weakening manufacturing demand.

As a result, analysts believe silver may continue underperforming gold in the near term unless industrial demand stabilizes or geopolitical tensions intensify enough to reignite speculative buying.