Silver Surges 150% Yet Faces Downside Risks: Supply, Regulation & USD Pressure

In the current silver market, the contrast between extraordinary price appreciation and mounting technical, regulatory, and supply constraints has created a volatile environment. Alexander Campbell, respected for his previous work at Bridgewater, frames the outlook as a classic case of a sharp rise juxtaposed against immediate risks. [1]

Silver’s spectacular 2025 performance—up ~156% over the year, with a ~30% surge in December—reflects strong industrial demand (solar, AI/data centers), tightening physical inventories, and intensifying ETF and investor interest. [1]

On the short-term risk front, Campbell highlights four key pressures: tax-year-end selling by holders seeking long-term capital gains treatment; strength in the US dollar buoyed by positive Q3 GDP; increased margin requirements from CME (especially for the March 2026 contract now requiring ~$25,000 initial margin); and overbought technical readings. [1][2] Adding China’s new export-licensing regime starting January 1, 2026 could significantly reduce globally available refined silver supply. [1][3] Together, these act as potential triggers for correction or sharp pullback.

From a physical markets perspective, premiums in Dubai ($91/oz) and Shanghai ($85/oz), versus COMEX futures (~$75/oz) indicate meaningful spot supply scarcity. Backwardation in London OTC markets at multi-decade highs further supports tightness. Campbell argues historically when such divergence occurs, it’s the paper that mispricing, not the physical. [1]

Long-term drivers—solar demand, data center growth, and inelastic industrial usage—remain intact. Solar sector demand is forecasted to rise from ~290 million ounces in 2025 to ~450 million by 2030. Substitution with copper is seen as economically (18-month payback) and operationally impractical. [1]

Strategic implications favor cautious entry (or re-entry) around pullbacks rather than chasing highs. Physical exposure could provide insurance against paper-market distortion, while leveraged or futures positions carry heightened risk. Key open questions include how stringently China will enforce export licensing, how much margin requirements will force leveraged liquidation, and whether demand shocks (e.g. substitution, slowdown) might emerge unexpectedly.