Silver loses more than half its value from record high: What went wrong and will it recover?

ET CONTRIBUTORS

However, the uptrend proved unsustainable. Following its historic peak, silver entered a prolonged correction as investor optimism faded amid profit-booking, slower industrial demand growth, and changing macroeconomic conditions. Prices gradually retreated throughout the year and slipped to $50 an ounce this week, marking a decline of more than 58% from the February high. The sharp reversal has reignited concerns over the durability of silver's bull run. Although long-term demand from renewable energy and electronics remains supportive, the market is increasingly reassessing growth expectations and pricing in a more cautious outlook amid global economic uncertainty.

Why did silver prices reach a record high?

Silver's rally to record highs was fueled by a combination of strong industrial demand, tightening supplies, and robust investment inflows. Demand from solar panels, electric vehicles, semiconductors, and advanced electronics surged, reinforcing silver's role as a critical industrial metal. At the same time, persistent supply deficits emerged as mine production struggled to keep pace with growing consumption.

On the investment side, silver benefited from rising concerns over inflation, currency weakness, mounting government debt, and geopolitical uncertainties, prompting investors to increase exposure to precious metals. The metal also rode on gold's bullish momentum, attracting speculative buying due to its smaller market size and higher volatility. Expectations of monetary easing by major central banks further boosted investor appetite. With strong industrial consumption coinciding with tight physical supplies and increased fund participation, silver prices rallied sharply, reaching record highs in both international and Indian markets earlier this year.

Why have silver prices fallen so sharply this year?

The sharp correction in silver prices reflects a significant reassessment of the bullish expectations that had driven the metal to record highs earlier this year. Following the rally, extensive profit-booking by hedge funds, institutional investors, and speculative traders accelerated the decline. Industrial demand growth also fell short of the lofty projections priced into the market, as weaker economic activity in major consuming regions, particularly China and Europe, weighed on manufacturing demand.

A stronger US dollar and periods of elevated real interest rates further reduced the appeal of non-yielding assets such as silver. Investment demand weakened as exchange-traded funds (ETFs) witnessed outflows, with investors reallocating funds to cash and fixed-income assets. Meanwhile, some industrial consumers postponed purchases in anticipation of lower prices. The combination of long liquidation, softer industrial demand, and changing macroeconomic conditions resulted in silver prices losing more than half of their value from the peak reached earlier this year.

How is the supply-demand scenario?

Despite the sharp correction in prices, the global silver market continues to face a relatively tight supply-demand balance. Demand remains supported by the growing use of silver in solar panels, electric vehicles, electronics, batteries, and medical applications, making it one of the most important industrial precious metals. However, supply growth has been limited, as a large portion of global silver output is produced as a by-product of lead, zinc, copper, and gold mining, restricting producers' ability to quickly increase production in response to price movements.

That said, weakening economic growth and lower prices are expected to moderate industrial demand in the near term. At the same time, increased recycling activity could add secondary supply to the market. While supply deficits may persist, the imbalance appears less severe than earlier anticipated, reducing some of the bullish momentum that had previously supported silver prices.

Investment demand and why geopolitical tensions have not supported silver

Silver occupies a unique position as both a precious and industrial metal, but during periods of geopolitical uncertainty investors generally favour gold over silver. Gold enjoys stronger safe-haven credentials, deeper liquidity, lower volatility, and continued purchases by central banks, making it the preferred defensive asset during times of crisis. As a result, much of the safe-haven capital generated by geopolitical tensions this year has flowed into gold rather than silver.

At the same time, silver's heavy dependence on industrial demand has limited its appeal. More than half of global silver consumption comes from industrial applications, making the metal vulnerable to concerns about slowing economic growth and weaker manufacturing activity. Consequently, while geopolitical tensions have supported precious metals in general, concerns over slowing industrial demand have largely offset any safe-haven buying in silver, keeping prices under sustained pressure.

Outlook: Why a break below $50 could be significant

The $50-per-ounce level is emerging as a key psychological and technical support for silver. A sustained break below this threshold could trigger fresh selling from speculative funds and momentum traders, increasing downside pressure. The sharp correction from this year's record highs suggests the market is moving away from the highly bullish environment that previously supported prices. While long-term demand from solar energy, electric vehicles, semiconductors, and green technologies remains constructive, these factors may not be sufficient to support prices in the near term. If global growth remains weak and investment demand fails to recover, silver could remain vulnerable to further declines. Therefore, long-term investors may consider waiting for price stabilization before building fresh positions.

(The author is Head of Commodity Research, Geojit Investments Limited)