The global silver market is projected to mark its sixth consecutive year of supply deficit, with robust demand from China showing no signs of slowing. The trajectory of XAG/USD quotes will hinge on developments in the Middle East, although downside risks appear limited. Let’s analyze the situation and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The silver market has faced shortages for the sixth consecutive year.
- China’s silver imports have reached a record high.
- The future of XAG/USD will be determined by events in the Middle East.
- Long trades can be considered as long as silver remains above $77.50.
Monthly Fundamental Forecast for Silver
No matter how the conflict in the Middle East ends, gold and similar assets offer a surefire way to shelter your funds. According to the Silver Institute, if the conflict de-escalates, the expectation of massive monetary policy tightening by central banks worldwide will subside, boosting XAG/USD quotes. However, if the war drags on, the outlook for the global economy will worsen, bond yields worldwide will fall, and low inflation-adjusted interest rates will set the stage for silver to rise.
The Silver Institute forecasts a sixth consecutive annual physical silver deficit in 2026, estimated at 46.3 million ounces — around 15% higher than in 2025. Both supply and demand are expected to decline by roughly 2%. However, an 18% surge in investment demand for bars and coins, reaching the highest level since 2022, along with an estimated 30 million-ounce increase in ETF holdings, is expected to be partially offset by a 3% decline in industrial demand.
Silver Market Balance
Source: Bloomberg.
The solar panel sector, which previously drove industrial demand, will face strong headwinds. However, high silver prices and the substitution of silver with other metals will have an impact.
This relatively pessimistic outlook stands in contrast to booming Chinese demand for silver from solar panel manufacturers. In March, China’s silver imports surged to 836 tons, well above the 10-year seasonal average of 306 tons.
China’s Silver Imports
Source: Bloomberg.
Nevertheless, it will be difficult for China to maintain imports at such a high level. The surge was due to the elimination of export rebates on April 1, prompting producers to actively stockpile silver. Going forward, the figure will likely decline and align with the Silver Institute’s forecasts.
Like gold, silver has a high correlation with the US dollar and oil. The decline in the XAG/USD in March was driven by the dollar’s strengthening as a safe-haven asset at the onset of the armed conflict in the Middle East and the rally in Brent and WTI linked to the closure of the Strait of Hormuz. Against this backdrop, Iran’s announcement that it would reopen the key oil transit route triggered a surge in silver prices to monthly highs.
Silver’s medium-term outlook appears clearly bullish. However, the initial reaction could be radically different. A de-escalation of the conflict would allow investors to buy silver at market prices. An escalation may push silver prices down to $70.5 and $69.5 per ounce. After that, the upward trend will likely begin to regain momentum.
Monthly Trading Plan for XAG/USD
Long positions in the XAG/USD — initially opened at $70.5 and increased at $77.5 — appear to be the sound decision. As long as silver trades above $77.5 per ounce, long trades can be considered with targets of $89 and $94.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of XAGUSD in real time mode
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