Volatility exceeds 100%, and silver has plunged 11 times in a month. When will it stop bleeding?
Silver has recently fallen into extreme fluctuations, with volatility soaring above 100%, exhibiting characteristics of "Meme stock" speculation. UBS warns that short-term positioning risks are extremely high and suggests paying attention to the $65 support level. Although frequent large fluctuations have eroded confidence, driven by expectations of interest rate cuts, dollar depreciation, and industrial demand such as photovoltaics, a supply gap of 300 million ounces still exists within the year
The recent volatility in the silver market is eroding investor confidence, with volatility soaring to over 100%, and the market is eager to find a price bottom. UBS warns that extreme volatility makes short-term positioning highly risky, but the long-term fundamentals remain intact.
On Friday, spot silver prices plummeted by 10% at one point, then recovered, rising over 2% to $73 per ounce. Silver futures prices fell more than 5% to $72.34 per ounce. Earlier this year, silver prices reached an all-time high, but last Friday saw a nearly 30% drop in a single day, and since then, it has struggled to regain its footing.
In a report released on Thursday evening, UBS pointed out that the recent plunge is more driven by risk aversion sentiment rather than a collapse in fundamentals. However, the bank emphasized that with one-month silver volatility now exceeding 100%, significant price fluctuations may occur in the short term. UBS also warned that without sustained investment demand, silver will struggle to maintain above $85 per ounce.
According to Refinitiv data, since the beginning of this year, silver has recorded 11 instances of daily price changes reaching or exceeding 5%. This frequent and severe two-way volatility has led institutional investors to have divergent views on the short-term outlook for silver.
High Short-Term Positioning Risk
UBS strategists stated that given the current extreme volatility, the bank does not find it attractive to establish long-term exposure to silver at current price levels.
With one-month volatility nearing 80%, silver option prices have surged, creating opportunities for investors to profit by betting on price bottoms rather than further increases. UBS believes that the strategy of betting on silver staying above approximately $65 per ounce appears more attractive in the near term, which effectively reflects a viewpoint: while prices may remain volatile, the likelihood of a deep drop below that level in the short term is low.
Nicky Shiels, head of research at MKS Pamp, stated that silver's recent performance bears little resemblance to past bull markets driven by physical supply constraints. "Silver has indeed been labeled as a meme stock or commodity due to its excessive volatility," Shiels said, adding that while silver's absolute price is not cheap, the expansion of retail channels has amplified speculative capital flows. She expects silver to digest the excessive behavior brought on by the recent surge in the coming weeks, rather than rebound immediately, with prices potentially dropping to $60 per ounce.
Long-Term Fundamentals Supported
Despite a cautious stance on the short term, UBS believes that the long-term fundamentals for silver remain intact:
"Lower nominal and real interest rates, global debt concerns, and considerations of dollar depreciation, along with our expectation of a recovery in global economic growth by 2026, should drive prices higher."
UBS continues to expect a shortage of nearly 300 million ounces in the silver market this year, with investment demand expected to exceed 400 million ounces. However, the bank warns that high prices may suppress demand for industrial uses Vasu Menon, Managing Director of Investment Strategy at OCBC Bank, insists that although recent market sentiment has been severely undermined, the structural investment logic for silver remains valid for investors who can withstand volatility. Menon stated that silver's mixed attributes often make it susceptible to shocks during periods of acute risk aversion.
"Silver can be viewed as a hybrid asset, characterized by features of precious metals, industrial metals, and speculative elements," Menon said. "It may appear to be a meme asset, especially when retail funds flood in, but it should still be remembered that it has fundamental drivers."
Menon's long-term target price for silver is $134 per ounce, expected to be reached by March 2027. Silver is widely used in a range of industrial and technological fields, including solar energy, catalysts, and electronics
