Silver Near $40: Deficits and Demand Fuel the RallySilver prices surged to multi-year highs in July 2025, driven by an extraordinary convergence of bullish factors, pushing prices above $39 per ounce, levels last seen in 2011.
Silver’s rally, supported by robust industrial demand and safe-haven inflows, aligns with traditional patterns as the U.S. dollar has weakened over 2.3% over the recent period.
Macroeconomic Drivers and the U.S. Dollar
Silver's rally is unfolding around shifting macro conditions. The Federal Reserve has kept interest rates at a restrictive 4.25-4.50% throughout 2025 due to persistently high inflation (2.7% YoY). However, expectations for more rate cuts are growing, with the CME FedWatch tool showing a 59.8% probability of a cut at the September meeting as of July 28.
Adding to the complexity, U.S. trade policies have triggered significant market volatility and raised concerns over a potential supply shock. The U.S. administration has imposed steep 30% tariffs on imports from Mexico, set to resume on August 1. This has heightened fears, as Mexico is the world’s largest silver producer and supplies over half of U.S. silver imports.
But macro drivers aren’t the full story. The real force behind silver’s rally lies in the physical market itself. A structural supply deficit, escalating industrial demand, and growing investor appetite from Asia and North America, are proving to be far more pivotal than shifting rates or a softer dollar.
Physical Market Dislocation and Industrial Demand
The year 2025 marks the fifth consecutive year of a structural deficit in the global silver market, and the imbalance between supply and demand shows no sign of easing.
With minimal new mining capacity expected to come online and lengthy lead times for project development, supply constraints are structural rather than temporary.
Since 2021, the cumulative shortfall has reached nearly 800 million ounces (25,000 tons), steadily drawing down available inventories and tightening the market.
Industrial demand remains the central pillar of silver’s bull market. Forecasts for 2025 project record consumption of roughly 700 million ounces, driven by rapid adoption in green technologies and digital infrastructure. The electrical and electronics sector, which includes solar photovoltaics (PV), consumer electronics, automotive electronics, power grids, and 5G networks, has increased its silver usage by 51% since 2016.
Solar PV alone consumed approximately 197.6 million ounces in 2024, a record largely driven by China’s 45% expansion in solar capacity. With global EV production expected to approach 20 million units in 2025, automotive silver demand alone could exceed 90 million ounces.
Together, persistent deficits, accelerating industrial consumption, and capital flowing into physically backed investment vehicles are creating a market where available silver is increasingly scarce, amplifying upside pressure on prices regardless of short-term macroeconomic shifts.
COMEX silver inventories peaked at 504.72 million ounces on May 11 but have since eased back to levels last seen on April 24, indicating a recovery in demand following the large accumulation in US inventories post-tariff shock.
Positioning and Ratios Favour Gains
With net inflows of 95 million ounces in the first half of 2025, silver ETP investment has already surpassed the total for all of last year. By June 30, global silver ETP holdings reached 1.13 billion ounces, just 7% below their highest level since the peak of 1.21 billion ounces in February 2021
Futures positioning has also surged , with long positions up 163% over six months. These factors have helped propel silver prices over 35% higher year-to-date, building on a 21% gain in 2024.
The iShares SLV ETF netted inflows of $1,467.5 million over the past 3 months.
Physical silver investment demand remains robust, with significant buying from Asian markets. India, the world’s leading silver importer, saw record purchases of physical bullion and silver-backed ETFs during the first six months of 2025.
The gold-to-silver ratio, currently in the late 80s, remains historically elevated, suggesting silver remains significantly undervalued compared to gold. This indicates substantial upside potential for silver, especially given persistent market deficits, rising industrial and investment demand, and gold rising at the same time.
Hypothetical Trade Set-up
The silver market’s bullish fundamentals appear increasingly robust. Investors may consider accumulating silver positions, viewing short-term consolidations as attractive buying opportunities amid the compelling long-term outlook.
Options open interest for the September contract shows a bullish bias with a put/call ratio of 0.82 and high call interest at the far out-of-the-money call strike of $45 per ounce.
To express a bullish view on silver, investors can deploy a long position in CME Silver futures expiring in September. A hypothetical trade setup for this view is described below.
● Entry: $38.00 per ounce
● Target 1: $40.00 per ounce
● Target 2 (extension): $42.00 per ounce (if Fed easing in September coincides with physical tightness)
● Stop Loss: $36.70 per ounce
● Profit at Target 1: $10,000
● Profit at Target 2: $20,000
● Loss at Stop: $6,500
● Reward-to-risk ratio: 1.54 (Target 1) and 3.08 (Target 2)
Alternatively, investors can exercise the same view using CME Micro Silver futures, which offer smaller notional positions and more flexibility. Each Micro contract is priced in USD per ounce and represents 1,000 ounces of silver, compared to 5,000 ounces for the standard contract.
MARKET DATA
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This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Si1
SI1!: Silver Demand Zone: Possible Bullish ContinuationI am currently observing a potential long-term continuation on SI1! Silver (XAG/USD), as the Commitment of Traders (COT) data indicates an increase in positions from both commercial and non-commercial traders. The price is approaching a demand zone on the daily chart, suggesting a possible bullish move.
The recent price action originated from an initial spike in the monthly supply zone, but there’s a possibility that the price could continue to rise further before reaching the next supply zone where a reversal might occur. Given the daily timeframe, I view this setup as suitable for a scalp trade. In my opinion, this presents an opportunity for short-term traders to capitalize on the potential upward movement.
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Silver: Daily Reversal Possible at Supply ZoneI'm anticipating a potential daily reversal in silver prices. Retail traders are maintaining a bullish stance, while commercial traders remain heavily short. The current price action suggests a possible reaction to a key supply area. What are your thoughts on the likelihood of a reversal, and what technical indicators might support or refute this potential shift?
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XAGUSD Strong accumulation waiting for a break-out. Silver (XAGUSD) has been trading within a 3-month Channel Up pattern and since the June 18 Higher High, it has entered a Descending Triangle.
This has previous been an Accumulation pattern, which after broken to the upside, it led to June's High. Similarly, we expect a bullish break-out once the 4H RSI breaks above its MA, and as long as the 4H MA200 (orange trend-line) holds, we expect a +15.50% minimum rise (like the first Bullish Leg of the Channel Up), with our Target se at 40.500.
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What is Gold Silver Spread?What is gold silver spread? How to understand them to determine the market direction.
Reuters mentioned that the gold-silver ratio dropped from 105 to 94. What does this mean? Does it indicate that silver is about to trend higher, or is it a sign that gold will continue its trend?
Micro Silver Futures
Ticker: SIL
Minimum fluctuation:
0.005 per troy ounce = $5.00
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Trading the Micro: www.cmegroup.com
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XAGUSD: Wait for a clear breakout to buy.Silver turned bullish on its 1D technical outlook (RSI = 57.038, MACD = 0.169, ADX = 26.102) but that alone isn't enough to turn us into buyers again just yet, as the Channel Up on the 4H timeframe has failed so far twice to break over the R1 level. If it does, then we will turn bullish, aiming for a +5.75% rise from the last 4H MA50 contact with TP = 34.4500.
See how our prior idea has worked out:
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Gold-Silver Ratio: Silver’s Lag and Historical DivergencesThe gold-silver ratio - the number of silver ounces equals in value to one ounce of gold – has surged recently as gold prices rally while silver underperforms. Gold, a traditional safe-haven, has climbed to record highs amid economic uncertainty, whereas silver, which is partly an industrial commodity, has struggled to break past $35/oz. As a result, the ratio is around 100 – meaning gold is ~100 times the price of silver despite the correction in the ratio from its peak around 125.
For context, the ratio averaged 57 from 1975-2000, and between 2000-2025 the ratio has ranged from 32 and 125 (with the max level reached this month with an average of 68. The ratio has observed extreme spikes in unusual crises).
Today’s elevated ratio highlights the divergence between gold’s sharp rally and silver’s lagging performance. The 25-year mean of the ratio is at 68, suggesting the present levels (100) represent an extreme deviation in favour of gold.
Historical Parallels in Gold-Silver Divergences
Similar wide divergences between gold and silver have occurred in the past. Key historical episodes illustrate how silver eventually played “catch-up” after lagging gold – albeit with varying lag times:
1970s – Silver’s Late Surge: After the U.S. abandoned the gold standard, gold prices soared while silver lagged. However, silver eventually staged a sharp rally later in the decade, quickly closing the gap and driving the gold-silver ratio sharply lower.
1980s – Prolonged Underperformance: Following the 1980 peak, precious metals collapsed, with silver suffering far more than gold. The gold-silver ratio surged and remained elevated through the 1980s and 1990s, as silver failed to catch up and largely moved sideways until the 2000s.
Early 2000s – Post-Recession Catch-Up: After the 2001 recession, gold began a
new bull market while silver initially lagged. Eventually, silver outpaced gold’s gains over the next several years, significantly narrowing the gold-silver ratio.
2008 Financial Crisis – Sharp Divergence and Recovery: The 2008 crisis caused gold to outperform sharply as silver collapsed. However, as the economy recovered, silver staged a dramatic rebound, quickly closing the gap and normalizing the ratio by 2011.
Why Is Silver Lagging Now? Industrial Demand Uncertainty
Roughly half of silver demand is industrial (electronics, photovoltaics, chemicals). Persistent worries about a global manufacturing slowdown and elevated inventories have capped silver’s upside just as investors have chased gold for geopolitical protection.
Source: Silver Institute
Worries about industrial demand have been exacerbated by the recent trade uncertainties which impact industrial sectors in an outsized manner.
By contrast, gold’s appeal as a safe haven has been boosted by geopolitical and inflation fears, driving it to record highs in 2025.
Despite cyclical swings, the underlying secular trend has crept higher for decades. Gold’s monetisation (central-bank reserves, ETF holdings surge) versus silver’s demonetisation, higher real production costs for gold, and silver’s growing industrial elasticity are all factors that represent a risk to normalization of the GSR.
Even a forceful mean-reversion might therefore stall nearer 60–70 than the sub-40 extremes of earlier cycles.
Hypothetical Trade Setups
History shows that once macroeconomic uncertainty clears, silver often recovers lost ground quickly. In previous periods of extreme gold-silver divergence, from the 1970s through 2008, silver staged strong rallies that pushed the gold-silver ratio (GSR) back toward normal levels.
Today, however, silver’s outlook remains clouded by uncertainty, particularly amid the ongoing trade war. Prices risk stalling below resistance around $35/oz. Consequently, the normalization in the GSR may instead result from a correction in gold prices. Gold has consistently broken record highs, and its long-term outlook remains firmly bullish. Nevertheless, concerns about the sustainability of the recent rally are valid - last week, gold fell sharply after setting a new high above $3,500/oz.
In summary, a normalization in the GSR could result from either a silver rally or a gold correction. While each path remains uncertain, a position focused on the ratio itself is relatively insulated from further divergence.
Given this environment, we could express our view in GSR through a long position in silver and a short position in gold. Investors can implement this using CME Micro Silver and Micro Gold futures. This setup benefits from 72% margin offsets. The Micro contracts balance the notional value between both legs by using one contract each.
A hypothetical trade setup consisting of a short position in CME Micro Gold futures expiring in June (MGCM2025) and a short position in CME Micro Silver futures expiring in June (SILM2025), offering a reward to risk ratio of 1.6x, is described below.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme .
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
XAGUSD: 2 year Channel Up bottomed.Silver turned oversold intra day on its 1D technical outlook (RSI = 34.341, MACD = -0.553, ADX = 36.363) but recovered as it hit the bottom (HL) of the 2 year Channel Up and rebounded. It may be under the 1D MA50 but so were the lows of October 2nd 2023 and February 12th 2024 that formed the last important bottom. In the meantime the 1W RSI hit its LL trendline, an additional bullish signal. The DT Resistance and DB Support offer a great and high probability range for sideways trading, so our recommendation is to long but contain buying under the DT (TP = 34.500). If on the other hand the candle closes under the Channel Down, short and aim for the 1W MA200 (TP = 25.600).
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XAGUSD Channel Up aiming for the new Higher High.Silver (XAGUSD) has been trading within a Channel Up for exactly year (since the March 27 2024 Low). Its current Bullish Leg started on the December 31 2024 (Higher) Low after almost touching the 1W MA50 (red trend-line).
Once the price broke above the 1D MA50 (blue trend-line) on January 28 2025, it remained above it ever since, which is what happened on both previous Bullish Legs. We expect a +30% rise and a test of the 1.382 Fibonacci extension as the previous Higher Highs. Our Target is just below that at 37.000.
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XAGUSD: Buy opportunity inside this Channel Up.Silver has turned neutral on its 1D technical outlook (RSI = 53.179, MACD = 0.256, ADX = 29.375) as it posted a strong rebound this week, despite today's temporary pullback. This rebound took place at the bottom of the medium term Channel Up, pricing its HL. We are still at the start of this wave and we expect to repeat the +16% rise of the previous one. The trade is long, TP = 35.500.
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