Can silver still return to its peak?

Silver nearly halved after reaching a nominal all-time high of $121 per ounce in January this year. HSBC Securities’s latest research suggests that although the silver price remains fundamentally overvalued, the downside potential has become limited after a significant correction. It is expected to gradually decline in the second half of 2026, while the future average price forecasts are raised.

According to Wind Trading Platform, HSBC has significantly raised its 2026 average silver price forecast from $68.25 per ounce to $75, and for 2027 from $57 per ounce to $68. It also raised its forecasts for 2028 and 2029 to $59 and $52 respectively.

The report’s author, James Steel, HSBC’s Chief Precious Metals Analyst, points out that silver is currently trading above $85 per ounce, still nearly 30% below its January high, and the price is expected to further retreat to around $70 per ounce by the end of 2026. This upward revision is not a bullish signal but reflects a judgment that current prices are closer to equilibrium levels than at the start of the year, and also incorporates a wide volatility range—for the remaining period of 2026, silver is expected to fluctuate broadly between $68 and $88 per ounce.

Multiple factors are reshaping the silver market landscape: the Middle East conflict has triggered large-scale inflows into USD, high oil prices have intensified concerns over monetary tightening; market pricing for Fed rate cuts in 2026 has plummeted from over 50 basis points at the start of the year to nearly zero; over 200 million ounces of silver are flowing back from London to New York, greatly easing liquidity tensions; meanwhile, industrial and jewelry demand continues to suffer from high prices, and the global supply-demand gap is accelerating to narrow from 143 million ounces in 2025 to 73 million ounces in 2026.

From tariff fears to gold price retreat: tracing the origins of this round of price swings

The starting point of this silver rally can be traced back to Q1 2025, when tariff concerns emerged. The threat of US tariffs on silver imports triggered a strong rebound, with large amounts of silver moving from LBMA warehouses and Asian storage facilities to New York. The London spot market experienced historic backwardation, CME lease rates soared over 200%, and physical premiums (EFP) widened significantly.

Based on this, gold prices approached a record high of nearly $5,600 per ounce in late January 2026, serving as the core driver for silver’s rapid surge. As a derivative buy-in of gold’s rally, combined with supply tightness, tariffs, geopolitical and economic worries fueling safe-haven demand, silver hit a nominal all-time high of $121 per ounce on January 29.

Subsequently, multiple headwinds appeared. The Middle East conflict erupted, the USD strengthened, and stock markets declined, triggering asset sell-offs; Trump announced a pause on new tariffs on key minerals; US International Trade Commission issued unfavorable rulings on Section 232 tariffs, dismantling policy risk premiums embedded in silver. The nomination of Kevin Warsh as Fed Chair, coupled with market re-pricing, further pressured precious metals. Silver then plummeted from $121 to below $64 per ounce in just a few days, nearly halving.

James Steel notes that CME silver inventories have fallen from a peak of 531.9 million ounces in May 2025 to about 319 million ounces now, returning to normal levels, greatly easing spot market pressure, with lease rates and EFP levels also declining. Although silver remains on the key mineral list under the White House’s Section 232, and tariff risks are not fully eliminated, market sensitivity to related threats has significantly decreased.

Supply-demand gap narrows, making sustained price increases difficult

Based on HSBC’s supply-demand model built with Silver Institute’s 2026 survey data (compiled by Metal Focus), the global silver market’s supply-demand gap was 143 million ounces in 2025, expected to narrow to 73 million ounces in 2026, and further to 25 million ounces in 2027.

James Steel believes that the gradual narrowing of this gap is the core reason behind his expectation that silver prices will gently decline in the second half of 2026 and into 2027. On the supply side, mine production is projected to slightly increase from 847 million ounces in 2025 to 848 million in 2026, and rise further to 868 million in 2027; recycled supply is expected to grow from 197 million ounces to 216 million in 2026 and 222 million in 2027. On the demand side, industrial demand is forecast to decrease from 657 million ounces to 642 million in 2026, and jewelry demand to drop sharply to 157 million ounces; ETF holdings are expected to increase by 50 million ounces, with demand for bars and coins gradually recovering to 247 million ounces.

It’s worth noting that the tightness of .9999 high-purity silver may persist, providing some support to silver prices and nudging broader .9995 standard silver prices slightly higher. However, in the long term, increased surface stock and recycled supply will gradually exert downward pressure on prices.

Industrial and jewelry: high prices erode demand, trend unlikely to reverse

Industrial demand usually accounts for more than half of total silver demand, and its trend is crucial for silver prices. After nearly a decade of continuous expansion from 2015 to 2024, this trend saw a turning point in 2025: despite global industrial output growing by 2.9%, industrial silver demand fell from a record high of 679 million ounces to 657 million, a decline of about 3%.

Photovoltaic (PV) demand was the main driver of this decline, contributing about half of the 2025 industrial demand reduction. According to BloombergNEF’s 2026 global market outlook, global solar development has entered a low-growth phase. Cost pressures are key: in early 2026, silver paste and related silver products accounted for about 29-30% of total PV module costs, compared to only 3-5% in 2021 (per Kobeissi Letter data). Cost surges have accelerated manufacturers’ substitution of silver with copper and other non-precious metals. Additionally, global semiconductor sales surged year-over-year in Q1 2026, but the growth in sales does not translate linearly into increased silver demand; capacity expansion in consumer electronics is also constrained by tariff uncertainties.

James Steel points out that the brief spike above $120 in silver prices in January caused significant demand destruction. Industrial users expect prices to stay high long-term, and are actively reviewing and redesigning processes to significantly reduce or eliminate silver use. HSBC forecasts industrial demand will fall to 642 million ounces in 2026 and 618 million in 2027.

Jewelry demand is also under pressure. In 2025, silver jewelry demand dropped to 189 million ounces, the lowest since the COVID-19 pandemic began, mainly due to India’s domestic silver prices exceeding 250k rupees per kilogram. On May 13, India increased import duty on silver from 6% to 15% to counteract rupee depreciation and soaring energy costs, further suppressing demand. The Chinese market saw slight growth, supported by cultural factors and substitution of high-priced gold jewelry, but this is insufficient to offset the global downward trend. HSBC expects global jewelry demand to further decline to 157 million ounces in 2026, and slightly to 151 million in 2027, with silverware demand also continuing downward.

Supply side: mine and recycled supplies both increase

Global mine production of silver remains well below the 900 million ounces peak reached in 2016. In 2025, output rose to 847 million ounces, mainly driven by ramp-ups in Chilean projects and higher grades in Peru; Mexico’s contribution was limited due to declining grades and operational issues, and Asian output continued to decline amid disruptions in Indonesia and India. HSBC expects 2026 mine production to slightly increase to 848 million ounces, with main gains from the US, Canada (driven by Hecla Mining), and Morocco’s Zgounder mine; 2027 will see a more significant jump to 868 million ounces.

The key bottleneck constraining supply expansion is the very long development cycle of new mines. According to S&P Global, it currently takes nearly 18 years from discovery to production, significantly longer than the roughly 10 years in the early 2000s. The delays are across exploration, permitting, feasibility studies, and financing. Moreover, about 70% of global silver production is byproduct from gold and base metal mines, which limits independent development incentives for silver mines. Despite current all-in sustaining costs (AISC) being well below market prices, most producers’ costs are under $20 per ounce, so even with a sharp price decline, mining remains highly profitable, and production plans are unlikely to change.

Recycling supply growth will be more notable. Previously, rapid price increases suppressed recycling—holders, optimistic about higher prices, were reluctant to sell, with 2025 recycled supply only slightly up from 194 million to 197 million ounces. As prices fall from their highs, HSBC expects the reluctance to sell to diminish, with recycled supply jumping to 216 million ounces in 2026 and further to 222 million in 2027. High prices also stimulate recycling of industrial waste and electronic scrap, and increased jewelry recycling in price-sensitive markets like India.

Investment demand: slow recovery of ETF and futures positions

In 2025, silver ETF holdings surged by 142.5 million ounces to 857 million ounces, the largest annual increase since the COVID-19 pandemic, and silver prices soared accordingly. However, after the Middle East conflict erupted, investors sold off heavily to raise cash and cover margin calls, reducing ETF holdings to 790 million ounces, about 8% below the start of the year. HSBC has lowered its 2026 ETF inflow forecast from 70 million ounces to 50 million ounces, expecting some recovery in the second half, driven by expectations of USD weakness, geopolitical risks, and increased demand for hard assets amid fiscal imbalances. Lower prices will also attract value investors.

CME silver futures net long positions have also shrunk sharply, from 251.3 million ounces at the start of the year to 202.3 million. James Steel notes that total short positions are only 81.62 million ounces, leaving room for further short covering or increased shorting, which could weigh on prices rather than support them. The combined ETF and CME net long position of about 992 million ounces still equals over a year’s worth of global mine supply, posing a potential future risk of forced liquidation.

Demand for silver bars and coins shows signs of recovery. In the first three months of 2026, US Mint silver coin sales jumped 57% year-over-year to 8.56 million ounces. Institutional demand for large bars in Europe has strengthened amid geopolitical and policy uncertainties. However, high prices still suppress retail demand: in Germany, the removal of VAT exemption on some coins dampened local buying; in India, retail prices for silver coins with premiums now exceed $85 per ounce, deterring ordinary consumers. HSBC expects total demand for bars and coins to rise from 218 million ounces in 2025 to 247 million in 2026, and further to 265 million in 2027, mainly driven by institutional large bar demand.

USD and interest rates: key variables constraining silver price rebounds

The sharp reversal in interest rate expectations is the core reason for the recent sharp decline in silver prices and their limited potential for rebound. The strong rally at the end of 2025 and early 2026 was largely based on market expectations that the Fed would cut rates by at least 50 basis points this year. After the Middle East conflict, high oil prices boosted inflation fears, and at the Fed’s April 28-29 meeting, the target range for the federal funds rate was kept at 3.50-3.75%, with some members even signaling a shift away from easing language. Market pricing for rate cuts in 2026 has approached zero.

HSBC US economist Ryan Wang expects policy rates to remain unchanged through 2026 and 2027. HSBC believes the Fed will need to see core PCE inflation fall below 3%, possibly below 2.5%, before considering rate cuts. Powell hinted that language adjustments might occur as early as the June meeting, by which time Kevin Warsh is expected to be the new Fed Chair, and his policy stance will be closely watched. HSBC believes that even if rates stay steady rather than cut, it will still exert a net negative drag on silver prices.

Regarding the USD, HSBC FX research notes that recent USD movements have been mainly driven by Middle East news: a de-escalation would be bearish for USD, supporting silver; escalation would be bullish for USD and bearish for silver. This structural constraint temporarily sidelines traditional drivers like interest rate differentials. Longer-term, if Iran issues are resolved, USD might regain strength, but HSBC does not expect a significant decline. They see only a moderate support for silver in the medium term. Janet Henry’s team at HSBC Global Economics points out that prolonged Middle East conflicts and longer closure of the Strait of Hormuz will increase energy supply shocks, which could both slow growth and push inflation higher, creating dual risks for Fed policy and causing oscillations in silver prices.

All content above is from Wind Trading Platform.

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