Silver's Two-Month High Masks a Market Torn Between Treasury Firepower and a Deepening Supply Squeeze

Silver hits two-month high after US Treasury doubles long-bond buybacks, but industrial deficits and China's export curbs underpin structural squeeze.

Silver has clawed its way back to $68.20 per ounce, its strongest level in two months, but the rebound owes less to industrial fundamentals than to a dramatic policy pivot in Washington. The US Treasury's surprise decision on Wednesday to double its buyback operations for long-dated government bonds — a move aimed squarely at capping yields — has reignited appetite for an asset that pays no interest and thrives in a lower-rate environment.

The rally marks a sharp reversal from the prior session, when the metal slid 1.25% to $64.97. At that point, silver was still nursing a year-to-date loss of 8.61%. The whipsaw action underscores just how sensitive the market has become to monetary signals, with traders parsing every nuance of the Treasury's debt-management strategy.

The Mechanics Behind the Move

The catalyst was a two-step announcement. On Wednesday, the Treasury said it would scale up repurchases of 10- to 30-year notes to at least $4 billion per operation starting September 9 — double the previous pace. The following day, Treasury Secretary Scott Bessent told CNBC that operations could exceed even that floor, a comment that kept the metal bid into Thursday's session.

The initial reaction was immediate and broad-based. The 30-year Treasury yield, which had touched a 24-year high of 5.34%, fell to 5.19% on the news. Silver jumped roughly 1.2% to $64 in early trading, while the dollar index slid to its weakest level since late May, giving precious metals an additional tailwind.

But the relief proved short-lived. By Thursday, yields were climbing again — the 10-year back to 4.7% and the 30-year to 5.25% — and silver gave back some of its gains, consolidating around $66.70, down 0.44%. It finished the session at $67.95, a daily gain of 1.51%, but the broader tape turned defensive: the S&P 500 shed 0.9% and the Dow Jones lost 703 points, or 1.3%, as rising yields reignited inflation anxieties.

A Structural Squeeze Beneath the Surface

For all the short-term noise around rates, the more consequential story for silver remains the physical market, where supply has failed to keep pace with demand for years. The Silver Institute projects 2026 will mark the sixth consecutive year of deficit, with a shortfall of roughly 67 million ounces. Cumulatively, from 2021 through 2026, the deficit is approaching one billion ounces.

China is both aggravating and absorbing the squeeze. Since January 2026, Beijing has imposed export restrictions on silver, yet its June imports surged 62.5% year-on-year to 219,000 tonnes, driven by solar panel manufacturing and grid expansion. The combination — buying more while exporting less — tightens the global market further.

Industrial applications now account for roughly half of global silver demand, led by electronics at 34%, followed by solar modules and medical technology. The Silver Institute expects this industrial component to exceed 700 million ounces annually by 2030, a demand stream that grows independently of interest rate policy and distinguishes silver from gold's more purely monetary character.

COMEX inventory data offer a window into how tight the physical market really is. Warehouses hold 337.3 million ounces, but only 99.5 million are registered as deliverable; the remainder is merely "eligible," meaning it cannot easily be used to satisfy delivery obligations.

Banks See Pressure Ahead — But the Debate Is Open

The fundamental picture has not stopped some of Wall Street's biggest houses from turning cautious. J.P. Morgan cut its 2026 silver forecast on August 13 to an average of $70 per ounce, down from $84 penciled in back in May. The bank now sees the metal at $63 in the fourth quarter and $63 again in 2027, citing easing physical tightness and expected rate hikes. That call, however, predates the Treasury's latest intervention and does not reflect the current market reaction.

The tension between those expecting supply relief and the persistent structural deficit is likely to keep silver swinging between policy impulses and fundamental data in the weeks ahead. The metal remains far from its record high of $121.64 set in late January, and volatility shows no sign of abating.

The broader macro backdrop adds another layer of complexity. US total debt has surpassed $40 trillion — double what it was a decade ago — with interest costs running near $3 billion a day. Fed Chair Kevin Warsh has signaled that a rate hike is not currently the central bank's preferred path, though the latest FOMC minutes showed several officials still worried about inflation.

Analysts are split on where silver goes from here. Citi has turned structurally bullish on gold, arguing that Bessent's bond-market stabilization efforts effectively amount to dollar devaluation — a view that would support silver as well. Morgan Stanley sees gold above $5,000 by 2027, which would likely lift silver in its wake. On the other side, HSBC considers silver fundamentally overvalued, and UBS has trimmed its year-end target to $80.

Adding to the uncertainty, a state of emergency in Peru could disrupt mining output there. For now, the market remains bifurcated: rate politics drive the daily tape, but the supply deficit provides the floor. Which force wins out will depend on whether the Treasury's buyback program can hold yields down — and whether the physical squeeze finally forces the bears to capitulate.