Silver pulls back after breaching $80 in historic year-end rally

The white metal fell as much as 5% on Monday after earlier hitting a record high of $84 an ounce following a five-day rally. A weakening dollar and rising geopolitical tensions have added to the appeal of precious metals, with year-end silver, gold and platinum at all-time highs.

« Make no mistake: we are witnessing a generational bubble playing out in silver, » said Tony Sycamore, market analyst at IG Australia.

Read more: Why has silver risen even more than gold?

Silver’s rapid acceleration is capping a year-long rally in the precious metals, boosted by increased central bank purchases, money flowing into exchange-traded funds and three consecutive interest rate cuts by the US Federal Reserve. Lower borrowing costs are a tailwind for non-interest-bearing commodities, and traders are betting on bigger rate cuts in 2026.

In the past week, friction in Venezuela – where the US has blocked oil tankers – and Washington’s strikes against Islamic State in Nigeria have increased the appeal of precious metals. The Bloomberg Dollar Spot Index, a key gauge of the US currency’s strength, fell 0.8% last week, the biggest weekly drop since June. A weak dollar usually supports gold and silver.

Silver is better than gold for several reasons. First, the market is thinner. Tighter inventories and rapidly evaporating liquidity; London’s gold market is backed by roughly $700 billion worth of bullion that can be borrowed in the event of a liquidity crunch, but no such reserve exists for silver. This historic supply shortage occurred in October.

Read more: Sold Out in India, Panic in London: How the Silver Market Disintegrated

« The dominant factor of late has been the severe structural supply-demand imbalance in silver that has created a wrinkle for the physical metal, » Sycamore said. « Buyers now pay a substantial 7% premium for immediate delivery versus waiting a year. »

London vaults have attracted significant flooding since the October sale, but this has led to shortages elsewhere. In China last month, silver held in warehouses linked to the Shanghai Futures Exchange took a hit low since 2015.

In addition, much of the world’s readily available silver remains in New York as traders await the results of a US Commerce Department investigation into whether imports of the critical mineral pose a national security risk. The review could pave the way for tariffs or other restrictions on metal trade.

Read more: Precious Metals Craze Makes China Fund Abandon Investors

Unlike gold, silver also has many useful real-world properties that make it a valuable component in a variety of products, including solar panels, AI data centers, and electronics. With inventories near record lows, there is a risk of supply shortages that could affect multiple industries.

That prompted Elon Musk on Saturday to respond to a series of tweets about the supply shortage by saying X: « This is not good. Silver is needed in many industrial processes. »

Technical indicators show that the silver rally may have been running too hard, too fast. The metal’s 14-day relative strength index showed a reading of nearly 80, well above 70, which is considered overbought.

Spot silver rose as much as 6% to a high of $84.00 an ounce before falling 3.6% to $76.47 at 8:38 a.m. in Singapore. Gold fell 0.9% to $4,495.73 an ounce, off Friday’s record high of $4,549.92. Platinum and palladium each retreated after reaching record highs in the previous session.