Silver’s Tightrope: Navigating Risk While Eyes Remain Bullish on Industrial Demand

Alexander Campbell’s recent Substack post represents a nuanced shift: after advocating silver earlier in 2025, he now warns of specific short-term risks while maintaining a bullish long-term outlook. [1] He cites five main near-term risks and potential additional volatility from index rebalancing. [3]

Short-Term Risks: Campbell points to tax-motivated profit taking at year’s end as investors crystallize gains, potentially creating pressure on silver prices after December 31. [1][3] A resurgent U.S. dollar is another key concern, as strong Q3 GDP data could make dollar strength more likely, which typically acts as a headwind for dollar-denominated commodities like silver. [1] The CME’s decision to raise margin requirements for silver futures as of December 29 adds another burden, making leveraged positions more expensive and rendering speculative long positions more vulnerable. [1] Other short-term risks include overbought technical indicators and the possibility that solar and industrial users substitute copper for silver if silver becomes too expensive. [1][3] Lastly, index rebalancing—particularly in the Bloomberg Commodity Index—may force passive funds to reduce exposure, potentially triggering sell orders equal to about 9% of silver’s futures open interest in early January 2026. [3]

Long-Term Positives: Despite near-term softening, the long-term case for silver remains strong. Demand from solar, industrial applications, and investment instruments like ETFs is robust. [1] Compounded by China’s implementation of export licensing from January 1, which threatens to tighten global supply. [1] Also relevant are physical market dynamics: elevated spot premiums in markets such as Dubai and Shanghai, large discrepancies between spot and futures prices, and historic backwardation in London suggest supply constraints and strong demand. [1][3]

Strategic Implications: For investors and corporates, this landscape suggests a two-phase play. In the near term (next few weeks to early 2026), risk management is essential—hedging, avoiding excessive leverage, reducing exposure ahead of known risk dates. But for those able to look past January’s turbulence, accumulating on weakness could offer outsized returns if supply constraints worsen and industrial demand continues its trajectory. Also, stakeholders in industries dependent on silver should evaluate cost-exposure for the coming year, especially solar, electronics, and supply chain operators.

Open Questions: Key uncertainties include whether the U.S. dollar will indeed rebound, or whether expectations for interest rate cuts in 2026 will keep dollar soft. The magnitude of forced selling from Bloomberg Index rebalancing is estimated but not certain. Also unresolved: how severe will the supply constraints from China’s licensing be in practice? Will industrial substitution materially accelerate if silver prices remain elevated? And finally, how will margin changes and regulatory adjustments affect participation and liquidity in silver futures markets?