Silver (XAG) Forecast: Silver Market Tightens as Supply Squeeze Hits Critical Level

Supply Squeeze Pushes Silver to $51.79 in Historic Rally

Silver surged to a decades-high on Monday, touching $51.79 per ounce before pulling back to $51.13, as a worsening supply crisis and aggressive investment flows converged to ignite a historic short squeeze. Prices are now sitting near levels not seen since 1980, with tight market conditions in London sending premiums soaring and prompting rare transatlantic air shipments of physical silver.

At 11:09 GMT, XAG/USD is trading $51.46, up $1.18 or +2.34%.

Traders are watching the $47.33–$51.79 short-term range closely, with $50.28 flagged as a key technical support. A close below that could trigger a near-term momentum pullback, although it won’t break the broader uptrend. The Relative Strength Index (RSI) for silver sits at an elevated 83, signaling overbought conditions and raising the odds of a temporary correction.

London Market Disruptions Signal Deepening Physical Shortage

The physical silver shortage is becoming acute in London, where inventories have plunged 33% since 2021, and only 200 million ounces of “free float” remain—down sharply from 850 million in 2019. The spot market is so tight that traders are flying silver bars from New York to London to capture premiums, a strategy rarely used outside of gold.

This structural squeeze is fueled by five consecutive years of global supply deficits, with annual demand exceeding 1.16 billion ounces. India’s aggressive import activity, a shift away from Hong Kong sources, and collapsing recycling volumes are compounding the strain.

Fed Cut Bets and Trade War Jitters Drive Safe-Haven Flows

Gold and silver are both riding a wave of safe-haven demand as geopolitical risk and monetary easing expectations intensify. Silver has rallied 78% year-to-date, outpacing gold’s 55% gain. Markets are now pricing in two Fed rate cuts—one in October and another in December—with a 95% and 79.8% probability, respectively.

Further lifting precious metals is renewed trade tension. Former President Trump’s threat to slap 100% tariffs on Chinese imports and impose new export controls has rattled global markets. China warned of retaliation, while traders are keeping an eye on the outcome of the ongoing Section 232 probe into critical minerals, which includes silver.

Goldman, BofA Stay Bullish but Warn of Volatility

Goldman Sachs expects silver to remain supported by private investment but flagged near-term volatility as more severe than in gold. Bank of America raised its silver forecast to $65 an ounce for 2026, citing structural deficits and tight inventory conditions.

However, analysts caution that RSI levels and stretched technicals could spark brief corrections. With prices well above the 50-day moving average, silver is technically vulnerable in the short run.

Outlook: Short-Term Pullback Possible, Long-Term Tightness Intact

Silver’s rally is fundamentally underpinned by chronic supply deficits and strong investor interest, but overbought signals and elevated positioning suggest a short-term correction is possible.

A close below $50.28 or a drop through $47.33 would confirm a shift in momentum. However, with physical supply severely constrained and safe-haven demand rising, dips may prove short-lived. Barring a dramatic reversal in Fed policy or trade developments, silver remains structurally bullish.

More Information in our Economic Calendar.