According to HSBC Global Investment Research, the rally was driven less by traditional industrial fundamentals and more by physical market tightness, investment demand and macroeconomic uncertainty. While prices are assessed as fundamentally under pressure, ongoing supply dislocations are expected to maintain high volatility until at least the first half of 2026.
The report says that a key driver of recent price behavior has been the acute shortage of silver available, particularly in the London market. It noted that “the tightness in the London market and extreme backwardation in the CME futures markets underscore the shortage of deliverable silver in the near term.” HSBC warns that while prices are high, “we view prices as fundamentally overvalued”, but adds that volatility is likely to persist until market tightness eases later in 2026.
Gold prices continue to provide important support for silver, although silver is increasingly traded on its own supply-demand dynamics. The gold-silver ratio has narrowed significantly, reflecting the relative outperformance of silver. High gold prices have also encouraged substitution with silver, partially offsetting the demand destruction caused by silver’s high price level.
“The gold price is providing important support, but is not the main driver of silver as in previous rallies,” the report said, adding that silver is increasingly “driven less by gold and more by its own market dynamics.” From a demand perspective, investment flows remain dominant. Exchange-traded funds saw significant inflows in 2025, and investments are expected to rise further in 2026, albeit at a slower pace.
Nevertheless, the broader environment remains supportive, with the “debate over future Fed rate cuts, Fed independence and geopolitical risks” described as “price supportive.” A weaker US dollar is also expected to provide downside support as “the likelihood of a soft USD… could support silver during downturns.” On the supply side, mining production is increasing only modestly, despite historically high prices. Recycling is increasing and represents the most elastic supply component, but even this is expected to lag behind prices until market conditions stabilize.
According to the report, overall market balances are expected to remain in deficit, although shortages are expected to decline from around 230 million ounces in 2025 to around 140 million ounces in 2026, and beyond into 2027. These moderate shortages help support high prices, but do not fully justify the size of the recent rally, which has been amplified by local shortages and investor positioning.
The average silver price is expected to be around $68/oz in 2026 and $57/oz in 2027, with wide trading ranges reflecting continued volatility. While further upside peaks are possible in the short term, easing physical tightness, rising supply and weaker industrial demand are expected to contribute to price moderation later in 2026.
However, the report warns that silver is still in a high-risk, high-volatility phase. Short-term support is strong, but the market appears increasingly vulnerable to sharp corrections once supply constraints ease.
Published on January 8, 2026
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