The Silver Paradox: AI Demand Soars as Deficit Halves and HSBC Flags 68 Dollar Target

Silver futures dip to $75.46 amid conflicting forces: surging AI data center demand clashes with a narrowing supply deficit, while Fed rate decisions and falling solar/jewelry usage cloud the outlook.

Silver futures edged down to $75.46 in early Thursday trading, shedding roughly $12 from the prior week’s level. The pullback masks a deeper tug-of-war: while booming demand from AI data centers promises a structural lift, the chronic supply deficit that long underpinned bullish bets is rapidly narrowing. The metal’s short-term path now hinges on the Federal Reserve’s next move, with traders assigning a 50% probability of a rate step in December.

The engine of future industrial consumption is shifting. Goldman Sachs projects a 165% surge in electricity demand from data centers by 2030, a trend the Silver Institute calls the most important driver of industrial silver use. AI training racks consume 60 to 130 kilowatts, compared with 10 to 15 kW for standard server racks, requiring specialized connectors and cooling systems that rely on silver’s superior electrical and thermal conductivity. This new appetite is forcing the market to recalibrate longer-term expectations even as immediate headwinds accumulate.

Yet the supply-demand arithmetic is moving in the opposite direction. HSBC’s chief precious metals analyst James Steel warns that the global deficit is shrinking fast. The shortfall slid from 143 million ounces last year to an expected 73 million ounces in 2026, and the bank projects a further drop in 2027, pulling the average silver price to $75 an ounce next year and $68 in 2027. “Moderating deficits are insufficient to sustain rallies over extended periods,” Steel said.

Traditional sources of demand are fading. Solar panel makers are systematically reducing silver content per module, driving an expected 19% drop in photovoltaic consumption next year. Jewellery demand fell 9%, while silverware usage slumped 17%. The combined erosion threatens to offset gains from the technology sector, keeping the deficit on a contraction path.

On the supply side, high prices are unlocking new volumes. Global silver production is set to hit a decade high this year, with recycling volumes poised to break 200 million ounces for the first time since 2012. That additional flow helps plug the gap, but the market remains undersupplied for the sixth consecutive year, forcing continued draws on above-ground inventories, which have shrunk by nearly 762 million ounces over that span.

The macroeconomic backdrop offers no clear respite. Minutes from the Fed’s April meeting revealed a hawkish tone, with many officials seeing further rate hikes as necessary if inflation stays above the 2% target. The next policy update arrives at the June 16-17 meeting. If the central bank maintains its pause, silver could consolidate into autumn; a signal of imminent cuts would give prices room to run.

Geopolitical developments have provided short-lived support. Reports of a possible US-Iran deal pushed bullion above $76 on Wednesday, easing oil prices and inflation fears. A mid-May meeting between President Trump and Chinese leaders had earlier buoyed sentiment. But analysts caution that such impulses lack staying power.

J.P. Morgan Global Research takes a more bullish view, forecasting an average of $81 an ounce in 2026, citing persistent physical shortages and uncertainty over global tariff policies. The London Bullion Market Association’s consensus puts the 2026 average at $79.57, but the range of individual estimates stretches from $42 to $165, a dispersion that underscores how sharply opinions diverge. For now, silver remains caught between a shrinking deficit and the relentless expansion of the digital economy — each pulling the metal in a different direction.