Silver’s Demand Dislocation: UBS Sees Deficit Shrinkage Even as Physical Scarcity Persists

Silver holds near $83 despite India tariff hike, solar thrifting, and fading rate-cut hopes; UBS cuts 2026 deficit forecast from 300M to 60-70M ounces, lowers price targets.

Silver is caught in a rare paradox. The metal has held near $83 an ounce despite a barrage of headwinds — India doubling import tariffs, solar manufacturers slashing usage, and the Federal Reserve’s rate-cut timeline all but evaporating. The structural supply deficit that has underpinned the rally is still there, but the narrative is shifting as demand cracks in unexpected places.

UBS slashes its deficit bet

The most striking revision comes from UBS, which now expects the silver market to run a deficit of just 60 to 70 million ounces in 2026. That is a dramatic cut from the bank’s earlier projection of around 300 million ounces. The adjustment is not cosmetic; it reflects a fundamental reassessment of how quickly end-users are adapting to high prices.

UBS has also lowered its price targets. For the end of the second quarter, the bank now sees silver at $85 an ounce, down from $100. For March 2027, the forecast has been trimmed to $75. On the production side, mine output could hit roughly 850 million ounces, providing a slightly firmer supply base than previously assumed.

India turns the screw on imports

New Delhi’s decision to hike import duties on silver and gold from 6% to 15% has sent shockwaves through the trade. The government’s aim is to protect foreign-exchange reserves and support the rupee. But the Gem & Jewellery Export Promotion Council (GJEPC) warns that such steep levies historically fuel smuggling rather than curb imports. Already in April, inbound shipments fell to near 30-year lows after banks suspended purchases.

The tariff wall adds another layer of uncertainty to a demand picture that is already clouded by industrial thrift.

Solar industry shifts gears

The most consequential demand shift is happening in photovoltaics. High silver prices have accelerated the industry’s “thrifting” push — reducing the amount of metal used per solar cell. The impact on volumes is stark. Last year, the solar sector consumed around 187 million ounces of silver. For 2026, analysts expect that figure to plunge to roughly 151 million ounces, a drop of about 19% year-on-year.

That contraction pushed total industrial off-take into negative territory for the first time since the pandemic, even as other segments like AI data centres continue to grow. The clean-energy story remains intact, but the link between solar capacity additions and silver demand is no longer linear.

Investment appetite fades

Financial demand is also losing steam. UBS points to declining ETF holdings and a drop in speculative positioning on the futures market. The bank has slashed its investment-demand forecast for this year from over 400 million ounces to 300 million ounces.

Monetary conditions are not helping. After hotter-than-expected US inflation data, the market priced out a June rate cut almost completely. The probability of a cut in that month tumbled from about 48% to below 8% in a matter of days. A hawkish Fed is traditionally toxic for non-yielding assets like silver.

Analysts split on the outlook

Despite the UBS downgrade, the consensus is far from uniform. J.P. Morgan sees silver averaging around $81 an ounce this year. Goldman Sachs expects a range of $85 to $100. Citigroup is more bullish, targeting $110 in the second half, citing physical scarcity.

That spread underscores the market’s uncertainty. Short-term data point to cooling demand, but the physical balance sheet remains taut. The World Silver Survey forecasts a sixth consecutive annual deficit — pegged at over 46 million ounces — and COMEX registered inventories have fallen sharply since last autumn.

Silver is thus trading in a narrow tension zone: less euphoria from solar and ETFs, but still scarce physical metal. The $85 level is now a short-term litmus test for whether the market buys the UBS revision or continues to bet on the deficit narrative.