Silver prices jump over 4% to reclaim $51/oz as Democrats secure US midterm victory. What’s happening?

ETMarkets.com

The rebound comes after silver plunged to an 11-month low earlier this week, slipping below $50 and entering oversold territory.

The political outcome also weighed on the US dollar and Treasury yields, providing support to precious metals. "We've seen gold benefit from the fact that yields and the dollar have dropped, and that's because of this opinion that the gridlock that could emerge between the executive and the legislature in the US now could slow the amount of spending in the US," Kyle Rodda, senior financial market analyst at Capital.com, told Reuters.

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Global equities fell on Wednesday, while the dollar touched a one-month low after Democrats secured a decisive victory in the midterm elections. The result has raised concerns that a Democratic sweep could disrupt the data centre expansion driving the artificial intelligence trade and weigh on technology spending. A weaker dollar makes commodities priced in the greenback, including silver, more affordable for overseas buyers.

CNBC quoted Rhona O'Connell, head of market analysis for EMEA and Asia at StoneX, as saying that a Democratic takeover of both chambers of Congress could support gold and silver by putting downward pressure on interest rates and the dollar.

She cautioned that such an outcome could bring fiscal brinkmanship and institutional friction, adding to uncertainty. The Iran war and a weaker dollar would also compete with the impact of a hawkish Federal Reserve.

O'Connell said the prospect of reduced fiscal stimulus could push long-term yields lower and weaken the dollar, although debt-limit premiums in Treasury bills and a Federal Reserve inclined towards another rate hike could offset some of that impact.

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Silver outlook

Global investment bank HSBC believes silver prices retain some upside potential, although further gains are likely to be limited. Gold is expected to remain a key influence on silver prices, with the brokerage's moderately positive outlook for bullion likely to provide additional support.

HSBC believes silver is trading close to levels justified by its fundamentals and maintains a mildly positive outlook on the metal. However, industrial and jewellery demand are expected to weaken further. Institutional buying, particularly from China and India, is likely to lend support to demand for large silver bars.

Demand for coins and smaller bars could also improve, although the recovery may be gradual as high prices continue to deter buyers. Silver exchange-traded funds (ETFs), which saw outflows earlier this year, have also started rebuilding their holdings.

At the same time, a stronger US dollar, as projected by HSBC FX Research, and elevated bond yields could restrict further price appreciation. Silver could gain if the anticipated interest rate hikes do not materialise. Fiscal profligacy and geopolitical risks are other factors expected to support prices.

On the supply side, silver production is expected to increase despite difficulties in expanding mine output at higher prices. Since most mined silver is produced as a by-product of gold and base metals, producers have limited ability to quickly increase output in response to rising prices.

Lower ore grades and mine closures during the year are expected to be largely balanced by new projects and capacity expansions. HSBC expects mine production to increase significantly in 2027.

Mining costs remain considerably below prevailing silver prices, giving producers an incentive to raise output. Recycling activity is also expected to increase as bullion holders sell their holdings amid concerns over further price declines. Supply from hedging activity is rising as well.

HSBC estimates that the silver market deficit will narrow sharply from 140 million ounces (moz) in 2025 to just 5 moz in 2026, based on its supply-demand model and data from the Silver Institute's 2026 Survey. The shortfall is expected to widen slightly to 12 moz in 2027.

The substantial reduction in the deficit this year is partly due to investor liquidation during the first half of 2026.

The narrowing supply shortfall supports HSBC's assessment that silver prices are nearing equilibrium, leaving limited scope for a significant rally. However, continued shortages of high-purity .9999 silver could provide some support to prices.

Over the longer term, the availability of above-ground stocks and an increase in recycled supply could constrain sharp price gains and weigh on silver.