Silver has plunged 50% from its January peak to $60. Why it could hit $130 next year.

By Myra P. Saefong

Why the metal's current price of about $60 an ounce may not accurately represent its value

Silver prices are now about 50% below their record peak in January.

Silver prices have dropped almost 50% from their record peak in January after a trading frenzy in the metal came to an abrupt end. This comes despite demand for the metal remaining stronger than ever, which could help lift prices into next year.

Aside from its role as a precious metal, silver has become known for its industrial uses, including electronics, solar and military defense, artificial-intelligence data centers, and electric vehicles.

That dual purpose could now mean a disconnect has developed between silver's traded value and its importance as a critical material. The "core demand story" for silver remains intact, said Jan Skoyles, head of research at GoldCore.

Yet the futures market lately has been "treating silver like a rate-sensitive trading vehicle just as governments and industrial users are starting to treat it as a critical material," she told MarketWatch.

Prices for the precious and industrial metal (SI00) have declined by about half from their late January record-high levels of $121.79 an ounce intraday and $115.50 settlement, according to Dow Jones Market Data. Those highs were then promptly followed by a more than 30% one-day drop, the biggest in almost half a century. While silver prices have a history of volatility, moves this year have been more akin to the metal trading like a meme stock.

The market had been left vulnerable to sharp selloffs following the last leg of the "parabolic run-up" to the end-of January high, which was likely momentum-driven rather than fundamentally driven, said Nick Cawley, contributing analyst for gold and silver supplier Solomon Global.

The nearly 50% retracement from the end of January's high may interest "long-term value investors," especially as industrial demand remains relatively untroubled by recent events in the Middle East, Cawley said. Lower silver prices could lead to buying interest, he added.

At the same time, with global interest rates potentially set to move higher to quell inflation, "investors should be in no rush to buy silver-related assets," said Cawley.

Falling prices, rising demand

On the flip side, the disconnect between futures prices and physical silver matters, according to GoldCore's Skoyles.

Paper silver, which refers to financial instruments tracking the price of the metal - such as futures contracts - is being "sold off while access to physical silver is becoming more strategically important," Skoyles said.

Most people have been surprised by the "sheer speed and scale of the round trip [in silver prices], from over $120 to below $60, without any comparable collapse in the underlying demand picture," she added.

It is normal that prices would move on rate expectations, dollar strength or positioning, Skoyles said. What is "harder to square" is a move of that size, while solar, EV, electronics and defense demand continue to matter.

Silver prices have lost nearly 12% year to date, outpacing gold's 4.30% decline, though the two metals both have been pressured by strength in the U.S. dollar DXY and expectations for higher Federal Reserve interest rates to tame inflation.

Some of the reasons for the metal's run-up in prices earlier this year included India's decision in early December to allow pension funds to buy gold and silver for the first time, concerns over export restrictions from China - where 60% of global supply comes from - and ongoing multiyear supply deficits, said Robert Minter, director of ETF investment strategy at Aberdeen Investments.

Those fundamental factors also attracted the attention of very short-term, meme-stock buyers, he said - and most of those investors appear to have left "at the first sign of price weakness."

However, the stoppage of short-term speculation can put the market on firmer ground, said Minter.

Building a base

Paul Mladjenovic, author of "Investing in Gold and Silver for Dummies," told MarketWatch that the "mania" in the silver market earlier this year lifted prices to triple digits "too quickly," and that the price needed to come back down to "build its base" to roughly between $58 and $62 an ounce.

He said the next major rally will be stocks related to silver mining and development, which could report very strong earnings. Shares of Wheaton Precious Metals (WPM) were down about 2% this year as of Monday, while those of Hecla Mining (HL) were down nearly 14% year to date.

Over a longer 18-month stretch, Wheaton shares were up about 100%, while those of Hecla were about 214% higher, reflecting the bullish recent pricing for silver.

"As for the silver market, we agree that the fundamentals for silver remain strong," said Mike Parkin, vice president of strategy and investors relations at Hecla. He noted that the Silver Institute expects 2026 to be the sixth consecutive supply-deficit year, with mine production not keeping up with demand.

Wheaton didn't immediately respond to a request for comment.

Meanwhile, silver's September contract (SIU26) was last pegged at $62.50 an ounce on Comex, offering a strong buying opportunity, said Mladjenovic. He expects silver to end the year around $80 an ounce, and for prices next year to test the $110 to $130 range.

-Myra P. Saefong

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