Silver could fall further after latest slump, analysts say as they warn of demand destruction

Silver's breakneck 2025 rally has created the conditions for demand destruction among buyers of the precious metal, according to analysts, who say prices could fall even further from last year's highs.

The metal's wide range of industrial purposes means it is more sensitive to the economic cycle than gold, as an essential component in a variety of goods, from computers and mobile phones to solar panels and cars.  

Silver price gains of around 140% last year have been deterring buyers in various industries and its elevated price levels are beginning to weigh on demand, UBS said in a note published on May 22. 

"The demand erosion is likely to persist as long as prices remain at current levels," they wrote. 

"Unlike gold, which benefits from robust central bank buying, silver lacks this strategic demand anchor and remains absent from official sector reserves. As a result, silver is more vulnerable to shifts in private investment and industrial demand, and is likely to lag gold."

UBS believes the current investment case does not sufficiently reward investors for the associated volatility and, as such, it remains an "unappealing" position for them. 

Silver's remarkable run reached its peak on January 28 of this year when it punched through $120 an ounce before an almighty crash of almost 30% in a single day. 

Prices have recovered ground since hitting a 2026 low of $67.60 on March 20, but remain well below levels prior to the Iran war.

Both spot silver and silver futures rose in May to trade at around $87 an ounce on May 14, before another selloff saw prices consolidate around the $75-78 mark over the past two weeks.

Spot silver was last seen trading 3.7% lower at around $72.13 an ounce on Thursday, while front-month U.S. silver futures were also down 3.7% to settle at $72.16.

But analysts at HSBC say the metal is "fundamentally overvalued" and could diverge from gold in its trajectory.

"We believe further room to the upside is limited as silver remains overvalued, in our view," they wrote in a note published on Thursday. 

"Gold prices will likely remain influential, but we believe the gold:silver ratio is likely to widen, allowing silver to ease even if gold rallies."

Macquarie analysts also see little scope for a recovery in silver prices.

Its strategists think the Federal Reserve will hike interest rates in the first half of 2027, lifting downward pressure on precious metal prices.

"Whilst we expect average silver prices to remain around this level for the rest of the year, volatility will remain until the situation in the Middle East is resolved, with meaningful downside risk if the macro situation deteriorates further," the Macquarie analysts wrote in a note published on May 21.