The catalyst this time has been unusual: fear of US tariffs that have not yet been announced. A review of critical minerals launched by the US Department of Commerce under Section 232 raised the possibility that silver imports could face duties of 15-50%. Traders, unwilling to wait for clarity, acted pre-emptively.
Large quantities of silver were shipped from London to New York to get ahead of any potential levies. The result was a sudden drain on London inventories, triggering shortages across global markets. Borrowing costs for silver in London surged above 30%-an extreme signal of scarcity.
The knock-on effects were felt globally. In India, physical shortages around the Diwali festival pushed local premiums as high as 15% above international prices. Exchange-traded funds saw record inflows but struggled to source metal, forcing some funds to temporarily suspend subscriptions.
Once silver began arriving in the US, pressures eased and premiums normalised in London and Mumbai. But the pattern soon repeated elsewhere. In mid-December, a surge of speculative buying in China forced UBS’s silver ETF-the country’s largest-to halt new subscriptions. Prices subsequently fell 10% in a single session.
What stands out is that silver has risen roughly 90% since early September on the basis of tariff fears alone. Markets have effectively priced in a policy outcome that may never materialise. Such episodes of uncertainty often trigger exaggerated price moves-particularly in assets prone to speculative flows.
Industrial demand has reinforced the rally, but it may also limit further upside. About 58% of silver demand now comes from solar panels, electric vehicles and electronics. A year ago, silver accounted for roughly 5% of the cost of manufacturing solar panels. Today that figure has climbed to 11-13%, eroding margins and prompting manufacturers to seek alternatives or reduce usage. At current prices, demand is likely to become more price-sensitive. Higher prices should also encourage supply. Although around 70% of silver is produced as a by-product of mining other metals such as copper, today’s elevated prices improve the economics of increased production. This suggests that the present tightness may not be durable.
Silver occupies an unusual position in financial markets. It generates no income like equities or bonds, and while it has genuine industrial uses, its price is heavily influenced by speculative positioning. This makes it unusually volatile-more comparable at times to cryptocurrencies than to traditional commodities.
History provides sobering lessons. In 1979-80, silver surged from $6 to $49 an ounce before collapsing by more than 90%. In 2011, prices peaked near $48 and then fell by over 75% in subsequent years. In each case, silver had already multiplied several times before the decline began. Since the pandemic lows, prices have risen more than sixfold. Over the past year alone, they have almost tripled.
The rally may yet continue. But past cycles suggest that once momentum breaks, silver can fall sharply-often by 50% or more.
Timing will be critical. The Section 232 report was expected in October 2025 but has been delayed. Once published, the President will have up to 90 days to decide on tariffs. When this uncertainty ends -regardless of the decision-the incentive to hoard silver within the US should disappear, easing shortages and reversing speculative positioning.
Relative valuations also point to stretched conditions. From an Indian investor’s perspective, silver now sits at the opposite extreme of its historical relationship with domestic equities such as the Nifty index. Two years ago, silver looked inexpensive relative to stocks. Today, that balance has flipped decisively in favour of equities.
Sharp price rises create compelling narratives. They often sound convincing-until they abruptly stop working. Silver’s long history of violent reversals suggests caution is warranted. In markets driven by speculation, what looks irresistible today can unravel with surprising speed.
Investors would do well to remember that record prices are not, in themselves, a guarantee of lasting returns.
(The author is CIO Fixed Income – ICICI Prudential Mutual Fund)
