Silver faces a test of resilience

Silver's volatile year

Silver traded near $58.80 an ounce on 8 October, after closing at $60.37 on 2 October. That puts it roughly 18% below its 2026 opening price of $71 and around 50% below January's record of $121.62, although it remains 26% higher year on year.

With gold near $4,140, the gold-silver ratio stands at 68.6, meaning an ounce of gold costs almost 69 times as much as an ounce of silver. Despite silver's larger decline this year, the ratio does not necessarily suggest it is undervalued.

From record highs to a sharp correction

Silver began 2026 near $71 before surging around 70% to a record $121.62 on 29 January. The rally quickly reversed as investors withdrew roughly $3 billion from the iShares Silver Trust ETF (SLV) in January and higher exchange margin requirements forced leveraged traders to close positions. By mid-March, silver had fallen into a $72–$80 range, ending Q1 broadly flat at around $70–$75.

The decline continued in Q2. After opening April at $75.36, silver briefly closed above $80 amid hopes of progress in US-Iran peace talks, then traded between $75 and $77 through late May. In June, the Fed held rates but signalled further tightening was possible. A stronger dollar and renewed inflation concerns following the US-Iran energy shock pushed silver below $60 for the first time since December 2025. It closed at $57.43 on 24 June and ended Q2 at $58.59, down more than 22% from the start of April.

Q3 brought another reversal. Silver reached its yearly low near $54.75 on 17 July before weaker US employment data, including a 23,000 decline in July payrolls, reduced expectations of further Fed tightening. Prices rebounded 15.59% in August and tested $70 on 28 August, before hawkish comments from Fed Chair Kevin Warsh at Jackson Hole triggered another decline.

In September, the Fed delivered its first rate hike in three years, lifting rates to 3.75%–4.00%. The 10-year Treasury yield reached 5.3%, its highest since 2002, while the dollar index approached 102. Silver fell around 8% that month, ending Q3 just below $61, roughly 3%–4% above its Q2 close. The quarterly average was $62.59, compared with a year-to-date average of $73.24.

Across 2026, silver has traded between approximately $54.78 and $121.62. Its direction has been driven more by US interest rate expectations than by underlying physical supply conditions.

Bank forecasts point to a possible recovery

Major banks have lowered their silver forecasts, although their latest targets remain at or above current prices.

J.P. Morgan cut its Q4 average forecast from $90 to $63 an ounce on 13 August, with a 2026 average of $70.60 and a 2027 forecast of $63.90. It also expects the gold-silver ratio to widen towards 70 in the second half of 2026 and 75 in 2027. ING lowered its Q4 forecast from $84 to $74, after its Q3 estimate of $68 exceeded the realised average by around $5.40.

UBS expects silver to reach $70 by December, $75 by March and June 2027, and $80 by September 2027. Bank of America sees potential for prices to exceed $100 in Q4 if gold rallies, followed by a decline towards $75 by Q2 2027.

The difference between these forecasts is how far silver could recover. The more optimistic scenarios from ING, UBS and Bank of America depend heavily on a Fed pause that has yet to materialise.

Interest rates remain the biggest influence

The Fed, Treasury yields and the US dollar remain the main drivers of silver prices. Unlike bonds, silver pays no interest, making it less attractive when Treasury yields exceed 5%.

Markets currently assign around a 20% probability to an October rate hike and more than 80% to a December increase. September inflation data and the Fed's late-October meeting will be important tests. Softer inflation or a less restrictive policy outlook could reduce expectations of a December hike and support a recovery towards $65–$70.

Oil prices add another complication. With WTI near $91 and talks over the Strait of Hormuz stalled, elevated energy costs continue to fuel inflation concerns and strengthen the case for higher rates. A US-Iran agreement that lowers oil prices could therefore support silver, while renewed escalation could add pressure.

Gold and physical supply provide support

Silver's direction also depends heavily on gold. Banks often use gold price forecasts and the gold-silver ratio to estimate silver's potential value. At Goldman Sachs' revised end-2026 gold fair value of $4,650 and the current ratio, silver would trade near $68. At J.P. Morgan's projected ratio of 75, the implied price would be around $62.

Physical supply remains tight. COMEX registered silver inventories fell below 100 million ounces on 1 September and reached 96.28 million ounces by 25 September, down 5% in a month. The delivery coverage ratio, which compares potentially deliverable futures contracts with available warehouse stocks, stood near 19%, indicating tight conditions.

These shortages can help support prices during declines, but they were not enough to prevent Q3's sell-off.

Investment demand remains subdued

Speculative positioning has weakened considerably. Managed money held a net long position of just 7,614 COMEX silver futures contracts on 29 September, down from 13,124 two weeks earlier. Open interest stood near 107,000 contracts, more than 40% below the start of the year.

This suggests speculative positions are less crowded, reducing the risk of widespread forced selling. However, it also shows that fresh buying has yet to return.

Investors have favoured gold over silver. In the week to 8 September, the largest silver ETF recorded outflows of $29 million, while gold ETFs attracted almost $2 billion. A sustained recovery in silver investment demand may therefore depend on falling real yields or a weaker dollar.

The supply deficit remains a long-term support

The Silver Institute forecasts a sixth consecutive annual silver deficit in 2026, with demand exceeding supply by approximately 46.3 million ounces. Solar demand is expected to fall 19% as manufacturers reduce the amount of silver used in each cell, while coin and bar investment demand is forecast to rise 18%. Mine production is expected to remain broadly flat.

The deficit provides longer-term support, but it has not been enough to offset the pressure from Treasury yields above 5%. Until monetary conditions become more favourable, physical shortages alone may struggle to sustain a recovery.

Silver's key levels to watch in Q4

The base case is for silver to trade between the mid-$50s and mid-$60s as markets continue pricing a potential December rate hike.

A Fed pause, combined with lower oil prices, could support a recovery towards $70. Resistance sits at $62.40, followed by $64.20 and the August high near $70.

On the downside, support lies at $60, $58.04 and the July low near $54.78. A weekly close below $58.04 would put that low back in focus, while a further break could open the way towards $50.

Silver enters the final quarter with a persistent supply deficit but limited investor momentum. Whether prices recover will depend largely on inflation, the Fed's next decisions and the direction of US Treasury yields.