Silver Market Heats Up as Leveraged ETF Activity Surges

Silver market sees high volatility with leveraged ETF activity. Supply tightens as industrial demand grows, while analysts forecast a long-term price rise to $81/oz by 2026.

Trading in the silver market is exhibiting significant volatility, with heightened activity particularly evident in leveraged exchange-traded funds. The ProShares Ultra Silver ETF, which seeks daily investment results corresponding to twice the daily performance of silver bullion, is seeing a notable increase in trading volume amid these turbulent conditions.

Regulatory Scrutiny and Product Adjustments

The current environment for leveraged products remains under a watchful regulatory eye. The U.S. Securities and Exchange Commission (SEC) has recently expressed concerns regarding ETFs that employ leverage exceeding 200%. The ProShares Ultra Silver ETF, with its 2x leverage objective, operates within this established boundary. Concurrently, the issuer has announced a 1-for-10 reverse stock split for its inverse counterpart, the UltraShort Silver ETF. This corporate action is scheduled to take effect before the market opens on Thursday, February 26.

Supply Constraints and Industrial Demand

A key factor underpinning silver's price action is a tightening physical supply. Data from the COMEX commodities exchange reveals substantial withdrawals from registered inventories last month. In one notable week alone, approximately 33.45 million ounces of silver were removed. This trend points to strong physical demand, contributing to a contraction in readily available supply. Demand is being driven not only by traditional sectors like jewelry but also robustly by the solar energy industry and electronics manufacturing.

Beyond supply fundamentals, silver prices are being influenced by fluctuating U.S. Treasury yields and the relative strength of the U.S. dollar, adding layers of complexity to its market movements.

Analyst Forecasts and Investor Considerations

The long-term outlook for the metal remains positive according to several analysts. J.P. Morgan has issued a forecast projecting an average silver price of $81 per ounce for the year 2026. The firm's experts suggest a potential climb to $85 per ounce is possible during the fourth quarter of that year. These predictions are based on the anticipated continuation of strong industrial demand alongside constrained supply growth.

Investors utilizing the ProShares Ultra Silver ETF must be mindful of its structure. The fund is rebalanced daily, and due to the compounding effect of returns, holding periods longer than a single trading day can result in gains or losses that deviate from the stated 2x target. The product carries an expense ratio of 0.95% and is primarily designed for short-term trading strategies. Furthermore, ongoing uncertainty surrounding the future interest rate policy of the Federal Reserve may introduce additional short-term volatility for the dollar and commodity prices, including silver.