What lies ahead for silver?
A summary of 2025 and an outlook for 2026.
2025 has been an amazing year for silver stackers. The price of silver has gone up by about 150%, outperforming any other asset. As someone who has been pounding the table for over two years now, urging people to invest in silver, I believe I deserve some credit. Unfortunately, this spectacular rally has been halted in recent days by a sharp correction. The timing is not random. This correction was instigated by the commodity exchange, which in the past week has hiked margin requirements twice.
For those of you who don’t know, a margin requirement is the minimal sum of money that a market participant needs to have in their account in order to purchase a futures contract. Usually, it is much smaller than the notional value of that contract, allowing participants to use leverage, and command many more ounces of silver than they can physically buy. This can multiply their gains when the price is rising, but also multiply their losses when it is falling. In addition, it allows the exchange to “shake” these players out of their positions. Whenever margin requirements are hiked, participants need to produce more money in short order, or suffer a forced liquidation. If many participants are liquidated at once, this can create a selling cascade, which is exactly what we are seeing right now. The fact that this is the holiday season and many people are away from work is only exacerbating the selling.
But please don’t allow this correction to frighten you off. The fundamentals of silver are still extremely strong, and there are good reasons to believe that once all the speculative excess is drained out of this market, the rally will resume. The major development we’ve seen in 2025 is the realization by governments that silver is a vital resource for industry and national defence. The US federal government, for instance, has entered silver into its critical minerals list, paving the way for the creation of a new national stockpile. The Chinese government has recently introduced restrictions on the export of silver articles, potentially reducing the global supply. The Russian government has added silver to its reserves alongside gold, recognizing its monetary role for the first time in decades. The emergence of governments as silver consumers is destined to tilt this market into a perpetual state of deficit. There simply isn’t enough of it to satisfy everyone’s demand.
Equally important is the fact that the large banks are attempting to exit their short positions on silver. We suspect that for decades the price of silver has been suppressed, through the systematic shorting of futures contracts at the commodity exchange. This illegal activity was only possible because the vast majority of investors chose to settle in cash instead of standing for physical delivery. Now that the physical metal is in short supply, these banks are forced to retreat. The rapid move from $40 to $80 an ounce was probably the result of financial institutions frantically trying to exit these positions. Since the only way to do so is by purchasing the underlying asset, they were forced to chase the price higher. This is the silver squeeze we have been warning about for so long, or at least the initial stages of it. It is not yet over, because some of the banks are still trapped inside this trade. As long as they are, there will be added pressure on the price of silver to rise.
The last factor driving the rally in silver is the industrial demand, which is only expected to increase. Silver is widely used in the manufacture of electronics, which thanks to the AI revolution is seeing tremendous growth. The same goes for solar energy, which is becoming more and more widespread. A new source of demand for silver comes from the introduction of solid state batteries for electric vehicles, which are vastly superior to lithium-ion batteries. Unless the global economy enters a recession in 2026 and industrial demand contracts, high-tech industries will continue to consume the white metal at an ever increasing pace.
Let me remind you that silver has just recently broken out of a 45-year-long cup and handle formation. Such an epic breakout should lead to a sustained rally, and not peter out after a couple of months. Those who are calling the recent high “a blow off top” are underestimating the magnitude of this move. Even if we do get a substantial correction, this bull market is probably far from over, and after a period of consolidation I expect it to resume. The lack of participation by the retail investor is a telltale sign that this is just the beginning, and that silver has a lot further to go. Therefore I recommend that you don’t sell your silver. If you followed my advice and bought it without any debt or leverage, you should be able to endure the volatility, and ride it all the way to the top. If the price action is too scary for you to handle, just turn off your computer and go do something else. Silver has maintained its value for five thousand years. It is safe to assume that it will continue to do so while you are away.
I wish you all a happy New Year!
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Disclaimer
I am not a licensed financial advisor. This article is intended for general informational purposes only, and should not be regarded as investment advice. Before taking any investment decision, please consult with a professional financial advisor, who may assess your personal investment objectives and needs.