Silver – Rubber band reaching historic extremes

Key Takeaways

• Over the past six months, silver rose 140%, marking one of its sharpest rallies in history.
• Following the five previous episodes when silver gained more than 100% over a six‑month period, near‑term returns were mixed.
• However, a year later, silver was higher in only one of the five periods, and over the subsequent 18 months it was down in all cases.
• The sample size is small, and nothing precludes this time from being different or the rubber band from stretching further.
• That said, the evidence suggests the near‑term risk/reward is less favorable.
• For investors interested in silver, we would prefer to enter on pullbacks, while gold remains our favored precious metal from a portfolio‑diversification standpoint.

What happened?

Silver has rallied sharply in recent months, supported by policy uncertainty, tight physical supply, resilient industrial demand, and safe‑haven interest. While the U.S. administration recently signaled that silver and other critical minerals will be exempt from direct Section 232 tariffs tied to the critical‑minerals review, ongoing discussions around potential price floors, alternative trade frameworks, and broader industrial policy continue to bolster prices.

On the supply side, conditions resemble the February 2025 gold episode, when tariff uncertainty led to temporary bottlenecks and strained delivery channels. Silver has experienced similar tightness in London, the dominant wholesale physical silver market, as material has been redirected toward the U.S., amplifying stress and volatility. China, an important exporter, has also introduced export‑approval requirements, potentially adding friction to cross‑border flows.

Meanwhile, industrial demand remains a structural pillar, led by solar, electronics, and other technology‑driven applications.

Our take

Silver’s risk-reward profile appears less favorable after its sharp run-up. Over the past six months, silver has surged 140%, its strongest rally over a comparable period since 1980.

Moreover, silver now trades more than 100% above its 200-day moving average, one of the most stretched readings in its history. Nothing precludes the rubber band from stretching further - momentum often begets momentum - but the evidence also suggests that silver is increasingly vulnerable. Any pullback, even if it occurs from higher levels, may be both difficult to time and sharp.

The historical data supports our view. Since 1963, there have been five other instances when silver gained more than 100% over a six‑month period. Following the breach of this 100% threshold, the return patterns were as follows:

• Over the subsequent one to six months, performance was mixed, and it was not unusual for silver to build on its gains.
• Over the next 12 months, silver was higher in only one of the five periods—and that increase occurred during the 1979/1980 Hunt Brothers episode.¹
• By the 18‑month mark, silver was down in all periods examined.

Silver’s market structure magnifies the current risks. Its smaller size and thinner liquidity relative to gold naturally produce larger price swings, especially during periods of elevated positioning and speculative activity. Higher prices should eventually encourage more supply, substitution, and efficiency, but near‑term dynamics remain dominated by physical constraints.

Policy uncertainty remains a key driver. China’s new export‑approval requirements, while not an outright restriction, add friction and uncertainty, potentially fragmenting trade flows and sustaining volatility. If tariff and trade concerns fade, silver flows could shift back toward London, easing some of today’s tightness.

Overall, silver remains a relatively small market, and recent gains are best explained by physical tightness, policy noise, and industrial demand. Still, unlike in 2020-21, silver currently has firmer fundamental underpinnings.

Bottom line

Although the rubber band for silver can certainly stretch further, our assessment over the next 12–18 months suggests that the current risk/reward profile appears less attractive. For investors interested in entering the space, we would prefer to be buyers on pullbacks.

Moreover, from a portfolio diversification perspective, we continue to favor gold, given its more stable historical performance, its role as a store of value during periods of market stress, and the fact that it has risen on the majority of days over the past year when both stocks and bonds were down.