Silver Prices Retreat Amid Heavy Selling from China

Silver dips on Chinese selling, but a 6-year structural deficit provides long-term support. New U.S. tariffs and shifting industrial demand add to market uncertainty.

Silver faced downward pressure on Tuesday, even as new U.S. import tariffs that typically support precious metals came into effect. A wave of substantial selling activity originating from China is currently overwhelming the market, pushing prices lower. Silver traded near $87.50 per ounce, marking a decline of approximately 1%, a level far removed from the record peak of $121.64 reached in late January.

Structural Deficit Provides Long-Term Support

Beneath the short-term volatility, the silver market remains fundamentally tight. The Silver Institute forecasts 2026 will be the sixth consecutive year of supply deficit, with a shortfall projected at 67 million ounces. Since 2021, the cumulative deficits have surpassed 800 million ounces—nearly equivalent to one full year of global mine production.

Key 2026 projections include:
* Industrial Demand: Expected to fall 2% to 650 million ounces, primarily due to substitution efforts within the solar industry.
* Physical Investment Demand: Forecast to jump 20% to 227 million ounces as Western buyers return to the market.
* Total Supply: Anticipated to grow 1.5% to 1.05 billion ounces, with recycling volumes exceeding 200 million ounces for the first time since 2012.
* Jewelry Demand: Projected to drop 9% to 178 million ounces, its lowest level since 2020.

The dramatic price increase earlier this year is having a direct impact, prompting solar panel manufacturers to substitute silver with copper to manage costs. Meanwhile, demand from the computing sector for data centers and AI infrastructure remains stable.

U.S. Tariff Turmoil Adds to Uncertainty

Recent market movements are closely tied to developments in Washington. On February 20, the Supreme Court ruled 6-3 to strike down sweeping tariffs imposed by the previous administration under the International Emergency Economic Powers Act (IEEPA), stating the president had overstepped his authority.

The response was swift. By Saturday, the government announced a new legal basis for tariffs. Utilizing Section 122 of the Trade Act of 1974, a 15% import levy was enacted on Tuesday, effective for up to 150 days without congressional approval. This maintains a high degree of uncertainty over trade policy. Companies are now seeking refunds for an estimated $133 billion in duties already paid, presenting the administration with a significant fiscal dilemma.

Chinese Speculators Unwind Positions

The market is still feeling the effects of January's sharp correction. Silver had staged a parabolic rally to over $121 per ounce—a gain of roughly 170% for 2025, followed by an additional 60% surge early in 2026. That rally collapsed spectacularly when the CME Group raised margin requirements, triggering the liquidation of leveraged bets.

Chinese markets continue to show distortions, with local prices trading at a premium of about 10% above international benchmarks, indicating domestic supply constraints. However, the ongoing unwinding of speculative positions is creating persistent selling pressure, which dominated global price action on Tuesday.

This follows a 5% rise in silver futures to $86.61 on Monday, driven by classic safe-haven capital flows, before the Chinese selling curtailed the recovery.

Ratio Widens as Volatility Persists

The gold-to-silver ratio, which had narrowed from around 80:1 in November to under 50:1 at the January peak, has now widened back to approximately 65:1. Gold is currently quoted at $5,153 per ounce. Analysts at J.P. Morgan project an average silver price of $81 for the full year 2026.

The year-on-year performance remains striking: twelve months ago, silver traded at just $32.35, representing a gain of about 172%. However, compared to the previous month's price of $103.38, the metal is down roughly 15%.

A combination of trade conflicts, impending U.S.-Iran nuclear talks scheduled for Thursday, and continued liquidations from Chinese markets is likely to cement elevated volatility for the foreseeable future. While the structural supply deficit provides a firm long-term foundation, near-term sentiment is being dictated by uncertainty and selling pressure.