Silver (XAG/USD) fell for a second session, trading near $87.20 in Asian hours on Wednesday after moving towards $87.00. Prices weakened after liquidation in China linked to the unwinding of leveraged positions and a reversal in retail speculation.
The Shanghai Futures Exchange introduced tighter delivery rules and set delivery allocations to zero for many participants without approved hedging quotas. Silver also faced pressure from a stronger US Dollar, which raises costs for non-dollar buyers.
China Liquidation And Positioning
Demand conditions remain mixed as solar manufacturers replace silver with copper to reduce costs, while the market enters a sixth straight year of structural supply deficits. Demand from AI and electric vehicle sectors continued, and a 10% premium in Chinese domestic prices pointed to local tightness not fully shown in global pricing.
Policy developments added uncertainty after President Donald Trump said duties would rise to 15% following a Supreme Court decision limiting his emergency tariff powers. The US also imposed a 10% tariff on all non-exempt goods, and markets awaited Trump’s State of the Union address ahead of US–Iran nuclear talks on Thursday.
We are seeing the market digest the aftershocks of the massive China-led liquidation we witnessed last year. That event, driven by an unwind of leveraged speculative positions on the Shanghai exchange, reminds us how quickly sentiment can shift. While the speculative froth is gone, we note that open interest on SHFE silver contracts has since recovered by 35% from the lows, signaling a return of more stable, long-term participants.
The theme of solar manufacturers substituting silver for copper remains a headwind, but this trend appears to be slowing. Recent industry reports show that new N-type solar cell technology, which is over 25% more efficient, requires a higher silver content, partially offsetting the substitution trend. This underpins the long-term demand story, especially as the global structural deficit in the silver market has now officially entered its seventh consecutive year.
Macro And Strategy Outlook
From a macroeconomic standpoint, the landscape has changed significantly since last year’s tariff disputes. The US Dollar Index has softened from its 2025 peaks, falling nearly 4% as the Federal Reserve has signaled a definitive pause in its tightening cycle. This provides a tailwind for dollar-denominated silver, making it more attractive for international buyers.
Given these conflicting signals, derivative traders should consider strategies that benefit from both range-bound action and potential upside. Selling cash-secured puts below the current market price, perhaps around the $85 level, allows one to collect premium while defining a level to buy into the long-term industrial demand story. We also see value in using long-dated call spreads to position for a gradual price appreciation driven by the persistent supply deficits and growing EV and AI sector demand.
