Silver fall: what drove the crash, what's next and what should investors do?

If last year's silver rally tempted you to join in, this year's slide offers a sobering lesson. Silver ETFs have corrected more than 50% from their highs earlier this year, leaving investors who entered near the peak nursing steep losses.

The reversal underscores why silver should remain a small part of a diversified portfolio. Driven by both industrial and investment demand, the metal can be highly volatile. Experts attribute the recent correction to the unwinding of speculative positions and rising US bond yields, which have dulled the appeal of non-yielding assets such as silver.

What drove the fall?

Silver prices are driven by two factors: industrial demand and investment demand. “Right now both drivers are seeing some pullback. Industrial demand is slowing due to easing demand from the renewable space and investment demand is easing as several silver ETFs globally have seen redemptions,” said a fund manager, requesting anonymity.

Investor redemptions can partly be attributed to rising bond yields. Typically, when yields rise, commodities such as gold and silver lose their appeal because they do not offer any income.

“As long as we are talking about higher interest rates and higher inflation, the fall could be capped,” said Manav Modi, analyst, precious metal research at Motilal Oswal Financial Services.

With US inflation expected to remain elevated, markets expect the Federal Reserve to keep interest rates higher for longer, with further hikes possible. “High inflation, a hawkish Fed and high bond yields are drawing investors away from gold and silver towards US Treasuries. In this situation, silver prices could stay in the current range. The Fed's stance in December will decide the outlook from here,” said Tapan Patel, fund manager – commodities, Tata Mutual Fund.

“In the near term, prices may remain volatile due to the Fed’s hawkish stance, expectations of higher interest rates for longer and concerns over global economic growth. Unlike gold, silver is also driven by industrial demand, making it more sensitive to economic conditions,” said Satish Dondapati, fund manager, Kotak MF.

On the industrial side, silver remains in a supply deficit this year, a situation expected to continue next year. However, ETF redemptions have helped bridge the near-term gap.

“When an ETF is redeemed, the fund house has to release the physical metal into the market. So while the long-term deficit story continues, near-term silver availability is fairly comfortable. Solar demand grew at a very strong pace in 2024 and 2025, and it has levelled off this year. The deficit has narrowed, but it is still a deficit market,” said the fund manager quoted above. He added that if global economic activity holds up in 2027, silver's demand-supply fundamentals could improve.

Copper adds to the overhang. Bulk of silver is produced as a by-product of copper, zinc and gold mining. The International Copper Study Group, in October, forecast a surplus in the copper market for 2027.

“Silver needs a push from either gold or copper. Either the interest rate and inflation picture must turn supportive for gold to rise and silver to follow, or copper supply must tighten,” said Modi.

What lies ahead?

Despite the correction, silver ETFs are still up about 20% over a one-year period, and silver has outperformed gold in recent years. According to the fund manager quote above, about two-thirds of the silver produced is consumed by industrial demand, leaving a relatively limited free float for coins, bars and ETFs.

“When a large amount of money enters or leaves ETFs, it amplifies the price moves. As a rule of thumb, silver's volatility tends to be one-and-a-half to two times that of gold,” said the fund manager.

The sharp run-up also attracted speculative money. The unwinding of these positions is now adding to selling pressure.

The outlook will depend on how interest rates, inflation and industrial demand evolve. A more supportive rate environment could revive investment demand, while stronger global economic activity could improve industrial demand. Conversely, persistently high yields and weak industrial demand could keep prices under pressure.

How should investors respond?

For investors still building their precious metals allocation and looking to add silver, experts suggest staggered purchases rather than investing a lump sum. Given its volatility, silver should generally account for a smaller share of a portfolio than gold.

“Silver is very high beta. Overall precious metals can be up to 10-15% of the portfolio, split roughly 70:30 between gold and silver. Investors may accumulate silver gradually for the long term, but it should be held for diversification, not as a return enhancer. Chasing returns can backfire,” said Patel.

“Avoid lump-sum investments and consider staggered buying on corrections. Given its higher volatility compared to gold, conservative investors should keep a smaller allocation to silver within a diversified portfolio,” said Dondapati of Kotak MF.

Near-term volatility may persist amid global uncertainty. Investors should therefore treat silver as a diversifier within a broader portfolio rather than chase its recent returns.