By: Economy Middle east

Spot silver has recently marked a record surge, climbing to $64.31 for the first time ever and extending its year-to-date surge to over 113 percent. As of 6:01 GMT, silver was trading 0.68 percent lower at $63.81.

This rally has been fueled by robust industrial demand, shrinking inventories and the metal’s recent inclusion on the U.S. critical minerals list.

Silver’s relentless surge in 2025 will be remembered as one of the most dramatic revaluations in modern precious metals history, said Saxo Bank in a recent report. Having spent much of the past decade oscillating between being perceived as a monetary metal and an industrial input, silver finally resolved that identity crisis this year by being both at the same time, just as supply constraints became impossible to ignore.

Key factors driving silver’s rally

Momentum buying accelerates

The doubling in the price of silver did not happen in isolation. It began with gold. When the gold-silver ratio spiked above 105 in April, an extreme rarely sustained, silver increasingly looked mispriced. That valuation gap became the entry point for both speculative and longer-term investors. Once key technical resistance levels gave way from August onwards, momentum buying accelerated sharply, turning relative value into outright price discovery.

“Behind this move sat a broader macro backdrop that has strongly favored hard assets. Trust in fiat currencies has continued to erode amid persistent inflation pressures, rising fiscal deficits and growing concerns in bond markets about debt sustainability,” said Ole Hansen, head of commodity strategy, Saxo Bank.

Demand for hard assets grows in China

In addition, central bank gold buying remained robust, and while gold captured most institutional attention, silver benefited as the lower-priced, higher-beta alternative. In China, demand for hard assets was further supported by ongoing weakness in the property sector, reinforcing both gold and silver demand as stores of value.

“Crucially, this monetary tailwind collided with a tightening physical market. Miners have struggled for years to keep pace with rising industrial demand linked to electrification, solar power, electric vehicles and data-centre expansion,” added Hansen.

U.S. adds silver to critical minerals list

That imbalance was brought sharply into focus when silver was added to the U.S. critical minerals list. Ahead of a potential tariff announcement next year, large volumes of silver were shipped into U.S. warehouses, creating a dislocation between the U.S. and the rest of the world and tightening availability elsewhere.

Lower interest rates and softer dollar

Monetary policy has also played a decisive role in silver’s surge. Lower interest rates reduce the opportunity cost of holding non-yielding assets such as precious metals, and the Federal Reserve’s return to rate cuts in 2025 added an important layer of support. A softer dollar amplified this effect, making silver and gold more attractive to non-U.S. investors.

Looking into 2026, the policy outlook becomes more complex. The Federal Reserve is likely to come under increased scrutiny as political pressure rises following the appointment of a new chair more closely aligned with the White House’s growth and low-interest-rate agenda.

While higher long-end yields would normally be a headwind for precious metals, this time they may send a different signal—namely, unease about inflation persistence and fiscal expansion. In that scenario, higher yields could paradoxically reinforce demand for silver and gold as portfolio hedges.

Industrial demand to grow

Saxo Bank noted that much has been said about a “historic short squeeze” in silver. While the term is often overused, the mechanics this year have been real. With around 58 percent of global silver demand coming from industrial applications—photovoltaics, electrification, EVs and advanced electronics—demand has proven largely price inelastic in the short term. For manufacturers, silver is essential but represents a relatively small share of total production costs. Therefore, running out of supply is not an option.

Global silver industrial demand is poised to grow further as demand from vital technology sectors accelerates over the next five years. Sectors such as solar energy (PV), automotive electric vehicles (EVs) and their infrastructure, and data centers and artificial intelligence (AI) will drive industrial demand higher through 2030.

“This creates a potentially self-reinforcing dynamic in tight markets: higher prices do not immediately destroy demand, and concerns about availability can lead to precautionary buying, pushing prices even higher. The main losers in this squeeze have been industrial consumers forced to pay up, and short sellers who underestimated the depth of physical tightness,” added Hansen.

Risks to watch for in 2026

A sharp slowdown in AI-related investment, potentially triggered by a correction in stretched valuations, could soften demand for chips and data-center infrastructure while weighing on broader risk sentiment. Relative valuation also warrants attention: with the gold–silver ratio now near 68, broadly in line with its 30-year average and well down from the April peak above 105, silver is no longer obviously cheap on a historical basis.

That matters primarily under more ‘normal’ market conditions, where supply constraints are less dominant. In such an environment, a consolidation phase could see some capital rotate back toward gold rather than out of metals altogether, given their ongoing role as hedges against fiscal, inflation and geopolitical risks.

“Policy risk is another wildcard. If the U.S. ultimately decides against imposing tariffs on silver, metal currently warehoused domestically could flow back into the global market, easing tightness abruptly,” added the report.

Technically, the market will be watching whether silver can consolidate above the $54-55 area. A sustained break higher would reinforce the case for a higher trading range in 2026, especially given the bank’s supportive view on gold potentially heading towards $5,000. Failure to do so would not negate the structural story, but it would likely mean more volatility along the way.