Investment demand to continue to drive silver prices as industrial demand faces substitution headwind
11 Aug 2026 12:59:26 ET
CITI’S TAKE
We keep our point-price targets for silver unchanged at $75/oz for 0-3m and $90/oz for 6-12m (vs spot of $65/oz), as we expect continued recovery in investment demand driven by an eventual Strait of Hormuz (SoH) de-escalation and a less hawkish Fed. We expect silver to continue to track gold in direction with high beta, making it an ideal upside play in our view for a quick SoH resolution. We expect investment flows to continue to dominate the price trends, as solar demand faces structural slowdown due to thrifting and BC adoption. Strong demand in India, reflected in a ~7% domestic premium (30d MA, ex-duty), provides an additional underpinning for prices.
We expect investment demand to continue to dominate silver price trends for now, as industrial demand faces increasing headwinds from substitution and thrifting in the solar PV sector. Silver faced macro headwinds including higher real yields and a strong US dollar as higher-for-long oil prices led to speculations on Fed rate hikes. Our base case is for the SoH situation to eventually de-escalate, leading to an unwind of the recent macro headwinds and a recovery in investment demand on a less hawkish Fed. This could happen as soon as September-December.
India has implemented various measures to support the rupee including increased duties on silver. As conditions normalize with eventual SoH de-escalation and lower oil prices, these measures are likely to be gradually unwound, releasing pent-up India silver demand. We expect the global silver market to remain underbid by approximately 5-7moz per month until then. We expect Indian demand to strengthen in 4Q26, supported by the onset of the festive and wedding season. India premiums could rise further if FX reserve conditions do not normalize. Combined with a recovery in silver prices, this may encourage additional destocking by traders seeking to lock in profits and subsequently replenish inventories when import duties and premiums become more favorable. The India market is likely to rely heavily on supplies from Hindustan Zinc until then.
We expect BC adoption to accelerate meaningfully in 2027 and potentially emerge as a leading solar cell technology by 2028 as the technology matures and gains broader commercial acceptance. Facing margin pressure from industry oversupply, weak module pricing, and softer demand, Chinese solar manufacturers are focusing on premium product offerings, technological differentiation, and silver thrifting. After two years of weak profitability, capital allocation remains constrained as companies balance investments across silver-thrifting initiatives, BC technology, battery storage, and ongoing operations. Despite a 20% decline in solar cell prices YTD in 2026, major manufacturers such as Tongwei (covered by Pierre Lau) and Jinko (covered by Air Ma) remain loss-making. Currently, around 33GW of TOPCon capacity is being converted to BC production, while several large players including Tongwei, Jinko, and JA Solar (covered by Air Ma) have yet to make meaningful investments in dedicated BC capacity. We therefore expect BC capacity additions and adoption to accelerate from 2027 onward, with momentum building further as more manufacturers commit capital. We expect the silver market to stay in deficit through 2027, supported by still resilient demand from AI, 5G, and EVs.
Solar Silver Demand: BC Technology Adoption Emerging as a Structural Headwind
We now forecast silver deficit to narrow significantly to 64moz in 2026 from ~400moz in 2025. We reduce our 2026 silver demand forecast to ~1,100moz (down ~9% y/y) on the back of higher thrifting and substitution in solar cells. That said, we expect demand growth to pick up in non-solar industrial demand sectors such as AI, 5G, and EV. We see net ETF inflows of 10moz in 2026, which implies inflows of ~80moz in 2H26 as investors have shed 70moz YTD. Our base case assumes an eventual resolution on the Strait of Hormuz and a less hawkish Fed, supporting silver investment demand. Meanwhile, we expect silver supply to decline by 0.3% y/y in 2026 but to rise 3% y/y in 2027. Silver supply continues to lag the overall silver demand underpinning consecutive years of silver deficit until 2027.
In our bull case (20% indicative probability), silver prices rise to $95/oz by 1Q27 on swift US-Iran de-escalation and faster oil supply normalization, driving inflation down and leading to Fed rate cuts. India and China see strong pickup in investment and jewelry demand. In our bear case (20% indicative probability), silver prices decline to $50/oz by 4Q26 on the back of faster-than-expected thrifting and substitution in solar PV, continued SoH impasse, higher-for-longer oil prices, and a hawkish Fed.
Προσθήκη του MarketsReport.gr στην Google