Silver’s Long Game Intact—Short-Term Risks Could Trigger Pullback Soon

Alexander Campbell—former global macro investor at Bridgewater and current CEO of Black Snow Capital—originally pushed the silver bullish thesis in February 2025, based on anticipated structural deficits from solar demand. [1][3] As of late December, silver has returned ~156% year-to-date, with a ~30% gain just in December. [1] Although Campbell remains bullish for the long term, he now warns of five short-term risks that could cause a correction or volatility before April 2026. [1]

The five risks are:

• Tax-motivated selling: Traders holding positions for over 12 months may sell in early January to benefit from lower long-term capital gains tax rates. Additionally, deep-in-the-money options expiring Dec 31 could produce similar incentives. [1][3]
• U.S. dollar strength: Stronger GDP growth in Q3 suggests a possible rebound in the DXY index, which typically exerts downward pressure on dollar-priced commodities. [1][3]
• Margin requirement increases: CME raised margins on silver futures effective Dec 29, reducing leverage and speculative interest. [1][3]
• Technical overbought condition: Rapid ascent in price has left silver with overbought signals; sentiment and speculative positioning are elevated but Campbell contends there’s still room technically. [1][3]
• Copper substitution risk: Concerns that industries (particularly solar) could shift from silver to copper. Campbell notes that the payback period (~18 months) for refitting with copper is currently too long, making substitution less likely in the short term. [1][3]

Exacerbating these is a looming index technical storm: the Bloomberg Commodity Index (BCOM) rebalances weightings Jan 8-14, 2026. Because gold and silver have outperformed over three years, passive funds tracking BCOM are likely forced to reduce silver futures exposure—estimated at ~9% of its open interest, which could put meaningful selling pressure on the market. [3][2]

On the demand side, Campbell points to structural tailwinds: solar demand for silver projected to reach 290 million ounces in 2025 and rising toward 450 million by 2030, augmented by growing demand from AI/data centers. Supply remains constrained, and physical premiums (in Dubai, Shanghai) are diverging significantly from COMEX futures prices—indicating stress in the physical market. [1][3]

Strategic Implications:

• For hedge funds and institutional investors: weigh risk-reward in near term; consider trimming exposure ahead of expected selling windows (tax-year end, index roll period) while maintaining long positions for structural demand.
• For industrial users: high silver prices may become painful; substitution risk is real if payback periods shorten—monitor evolving cost comparisons with copper.
• For portfolio allocation: consider physical ownership or ETFs with stronger link to physical metal, given divergence between physical and paper markets.

Open Questions & Uncertainties:

• How deep will the selling pressure be during the Jan 8-14 index rebalancing? Will it overwhelm seasonal intent or momentum?
• What is the dollar trajectory in Q1 2026? If it strengthens significantly, could undercut silver gains materially.
• Will China’s new export licensing (starting Jan 1) meaningfully restrict supply, or will licenses be widely granted to offset impact?
• Will industrial substitution become more practical—lowering capex or retooling costs—if silver stays elevated (say, above $80-100/oz)?