Silver rally accelerates as China buying outweighs fading Western demand

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Silver rally accelerates

Highlights

Silver trades near $108, up roughly 50% YTD, with strong Chinese buying driving prices as Western flows fade.
ETF and futures data show investor selling, while high lease rates and Shanghai premiums signal tight physical supply.
Analysts warn Lunar New Year closures and valuation concerns could spark volatility after the recent sharp rally.

Spot silver was trading near $108 per ounce on Tuesday, after retreating from record highs above $117, and is still up roughly 50% year to date, far outpacing gold’s 16% gain. Analysts note that while industrial demand has provided a baseline of support, the recent surge is increasingly being driven by persistent buying from China, where prices in Shanghai have moved to a record premium of more than $14 per ounce over London benchmarks. That premium is reinforcing the perception among global traders that silver prices outside China remain undervalued.

Investor pullback and valuation concerns

Despite the headline rally, futures and ETF positioning tells a different story. Data from Comex and silver-backed ETFs show that investors have been net sellers over the past month, suggesting Wall Street is not leading the move. Ole Hansen, head of commodity strategy at Saxo Bank, warned that prices are approaching levels where industrial demand — normally around 60% of total consumption — could begin to suffer. At the same time, silver is starting to look stretched relative to gold, with the gold-to-silver ratio at a four-year low, according to BMI Research. Elevated silver lease rates near 3%, well above the near-zero levels seen in balanced markets, signal ongoing tightness in physical supply but also highlight rising costs for industrial users.

Profit-taking risks ahead of Lunar New Year

Looking forward, analysts see rising risks of volatility and consolidation. BMI expects silver prices to ease in coming months as supply constraints gradually improve and industrial demand, particularly from China’s solar sector, begins to peak.

Analyst Anton Kharitonov stated:

“Silver’s move higher today is being driven by a classic risk-off reaction — investors are hedging geopolitical and macro uncertainty by rotating into precious metals. As long as safe-haven demand stays strong and industrial supply remains tight, silver has room to extend gains, though short-term volatility should be expected after sharp rallies.”

Hansen also flagged the upcoming Lunar New Year trading shutdown, when the Shanghai Futures Exchange will close from February 16 to 23, as a potential catalyst for profit-taking. With speculative retail activity playing a growing role in recent price action, any shift in sentiment ahead of the holiday period could trigger sharper pullbacks. For now, silver’s momentum remains intact — but the balance between Chinese demand, industrial affordability, and speculative positioning will be critical in determining how sustainable the rally proves to be.

Recently we wrote that Silver's rally is being driven by heightened industrial demand, particularly from the solar panel sector, along with substantial supply constraints and concerns over dollar devaluation.

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