By a Briton News correspondent
London/New York — The silver market, long considered the volatile sibling of gold, is undergoing a period of unprecedented strain. A breathtaking price rally in 2025—which saw gains of up to 147% and a record peak near $84 per ounce—has collided with a fifth consecutive year of structural supply deficits, creating a liquidity squeeze of historic proportions and raising pointed questions about market stability and potential fallout for financial institutions.
The dramatic price action, including a sudden 10% intraday collapse in late December that some analysts allege bore the hallmarks of market manipulation, has exposed deep cracks in physical market logistics and left traders and industrial users scrambling for metal.
The anatomy of a squeeze
The current crisis is the result of a perfect storm of monetary, industrial, and geopolitical factors. The rally was initially fuelled by the same forces that propelled gold: investor flight from fiat currencies amid concerns over inflation, fiscal deficits, and debt sustainability. Silver, with its lower price point and higher volatility, acted as a leveraged bet on this broad precious metals thesis.
However, the move was supercharged by a critical physical shortage. The Silver Institute estimates the market will post a deficit of 95 million ounces for 2025, marking the fifth straight year of shortfalls and bringing the cumulative deficit since 2021 to nearly 820 million ounces. This structural imbalance was violently exposed in October, when lease rates—the cost to borrow physical silver—briefly spiked to an annualised 200%, indicating a near-total absence of readily available metal.
· Industrial demand inelasticity: Unlike gold, over half of silver demand comes from industrial applications, particularly solar photovoltaics, electric vehicles, and electronics. For manufacturers, silver is often an essential but small component of total cost, making demand relatively immune to price hikes in the short term.
· Pre-emptive stockpiling: Fears of potential U.S. import tariffs led to massive pre-emptive flows of silver into COMEX warehouses, effectively draining metal from the global circulating pool and exacerbating shortages elsewhere.
· Inelastic supply: Mine supply is notoriously unresponsive to price signals, as over 70% of silver is produced as a by-product of mining for copper, zinc, and gold.
Banking and fund exposures: rumours and realities
The extreme volatility has inevitably led to market speculation about casualties among financial institutions holding short positions. Unverified rumours have swirled of multibillion-dollar losses at major banks, though no such losses have been confirmed by regulatory filings or credible financial reporting.
Documented stresses have been more discrete but telling:
· Forced liquidations: Firms like TD Securities have publicly acknowledged being forced to liquidate short futures positions after being caught on the wrong side of the rally, crystallising losses.
· Margin calls and volatility: The CME Group raised margin requirements on silver futures during the peak of the volatility, a standard move that would have forced leveraged speculators to post more collateral or exit positions.
· ETP inflows vs. futures selling: While physical silver-backed exchange-traded products (ETPs) saw massive inflows of 187 million ounces in 2025, speculative money in COMEX futures has steadily reduced its net-long exposure to a 19-month low, suggesting a complex and fragmented investor response.
Geopolitical and economic reverberations
The silver squeeze has implications far beyond trading desks.
For the United States, the situation presents a strategic dilemma. The U.S. government recently designated silver as a critical mineral, underscoring its importance to the energy transition and high-tech manufacturing. Soaring input costs threaten to slow the rollout of solar power and electric vehicles, key pillars of industrial policy. However, domestic silver miners and recyclers are enjoying a windfall from higher prices and expanded margins.
Globally, China’s imposition of silver export restrictions from January 2026 has further tightened the noose on supply, giving Beijing additional leverage in trade negotiations and forcing other industrial nations to confront vulnerabilities in their supply chains.
Outlook: sustained tension with risk of further shocks
Most analysts believe the fundamental drivers remain bullish, but foresee a shift from a parabolic rally to a volatile, consolidation phase. The key supports are the persistent supply deficit, ongoing geopolitical uncertainty, and silver’s established role as an inflation hedge.
However, significant risks loom. A sharp reversal in investor sentiment, a resolution of tariff threats that unleashes warehoused metal back into the market, or a severe downturn in industrial activity could all trigger a sharp correction. The events of late December serve as a stark reminder that in the “Devil’s Metal’s” market, stability is often the exception, not the rule.
Market Summary & Key Price Levels
· 2025 Performance: Up ~147%, peak at $83.64/oz.
· Market Balance: Fifth consecutive annual deficit (est. 95Moz in 2025).
· Critical Support: $69.60 – $71.20/oz. A break below signals deeper correction.
· Key Resistance: $83/oz. A break above targets $91-$103.
· Primary Drivers: Structural deficit, inelastic industrial demand, geopolitical risk, USD policy.