Silver’s Rocky Start: A Market Tests Its Limits After Historic Gains

Silber Preis XC0009653103

The new year has opened with significant volatility for silver. Following an extraordinary annual surge of 147% last year, the precious metal is now contending with intense profit-taking pressure. Having reached an unprecedented peak of $84 per ounce on December 28, the price subsequently experienced a sharp decline, at one point falling more than 10% within days. This dramatic swing has left market participants questioning whether this marks a definitive top or merely a temporary consolidation within a market characterized by structural supply tightness.

Key Data Points:
- Silver commenced 2025 trading at $30 and concluded the year at $72.
- This represented its most substantial annual gain since 1979.
- The record high of $84 was achieved on December 28.
- Current trading hovers around $72 following the correction.
- China is set to implement stricter export controls starting January 2026.

The fundamental case for silver remains underpinned by robust industrial consumption, which accounts for over half of global demand. Key technologies are significant drivers: each solar panel unit utilizes approximately 20 grams, while electric vehicles can require up to 2 ounces. China alone is responsible for consuming more than half of the world's industrial silver. This persistent demand, set against declining inventories, has resulted in a structural supply deficit for five consecutive years—a fact underscored by the U.S. government's classification of silver as a critical mineral.

A Cascade of Pressures Weighs on Price

The immediate catalyst for the late-December selloff was a decision by the CME Group to raise margin requirements. The increase of $3,000, bringing the total to roughly $25,000 per contract, forced leveraged speculators to liquidate positions. This effect was magnified by the typically thin liquidity of holiday markets.

Technical indicators had previously flashed warning signs. The 14-day Relative Strength Index (RSI) had remained entrenched above the 70 level for weeks, a classic signal of an overbought market.

Further headwinds are anticipated from index rebalancing activity. Analysis from TD Securities notes that silver futures currently represent about 9% of the Bloomberg Commodities Index, with a target weight below 4% for 2026. To achieve this rebalance, an estimated 13% of the total open interest—valued at over $5 billion—may need to be sold over the coming fortnight, creating a technical overhang.

Supply Dynamics Grow Increasingly Tense

The physical market for silver is showing signs of significant strain. Global visible inventories have been in a steady decline; COMEX warehouse stocks have plummeted by 70% since 2020, with exchanges in London and Shanghai also reporting historically low levels. This tightness was recently evidenced by the market briefly trading in backwardation, where spot prices exceed futures prices—an unusual condition signaling immediate physical scarcity.

Compounding this, China, which controls an estimated 60-70% of global silver processing, is tightening its export rules. Effective January 2026, a new licensing system will restrict exports to only those firms with an annual production exceeding 80 tonnes and substantial credit lines, effectively sidelining hundreds of smaller exporters.

Macroeconomic and Technical Crosscurrents

Monetary policy continues to offer support for precious metals. Market expectations include at least two 25-basis-point interest rate cuts from the Federal Reserve in 2026, following three consecutive cuts in the latter half of the previous year. Lower interest rates generally enhance the appeal of non-yielding assets like silver. Furthermore, ongoing geopolitical tensions in regions such as Ukraine, Iran, and Gaza continue to drive flows into traditional safe-haven assets.

From a chart perspective, silver is now consolidating between $71 and $80 following its retreat from the record high. The $72 level has provided initial support. A sustained break below this zone could see the price test the more substantial support around $60, where the 50-day moving average resides. However, the primary upward trend established since August would remain technically intact even under such a scenario.

The coming weeks will be critical. If the market successfully absorbs the selling pressure related to index rebalancing, focus may swiftly return to the compelling structural fundamentals. Given the persistent supply deficits and steadfast industrial demand, the medium-term outlook for silver remains constructive.