Silver As Yieldless Asset
Factors influencing silver prices include economic conditions, with lower interest rates often boosting silver prices due to its status as a yieldless asset. The behaviour of the US Dollar also impacts silver as a strong dollar may keep prices lower.
Silver’s use in industry, especially electronics and solar energy, affects its price. Demand from major economies like the US, China, and India also influences silver values, with India particularly impacting prices due to jewellery demand.
Silver prices tend to mirror gold’s movements, rising when gold does. The Gold/Silver ratio can assist in assessing the relative valuation between the two metals, and changes in this ratio might indicate whether silver or gold is undervalued.
A Continuation Of The Silver Rally
With silver hitting an incredible $95 an ounce, we are seeing a continuation of the powerful rally that began last year. This move has been fueled by the Federal Reserve’s aggressive rate cuts throughout 2025, which weakened the dollar and ignited investor demand for hard assets. The 33% gain just three weeks into 2026 shows extreme momentum that traders must approach with a clear strategy.
The fundamental picture remains strong due to soaring industrial use, which now provides a solid price floor. We saw projections back in 2024 from The Silver Institute that photovoltaic demand would consume over 20% of total silver supply by 2026, a forecast that is now clearly reality. This consistent demand from the green energy and electronics sectors is a key reason this rally is different from past speculative bubbles.
However, the Gold/Silver ratio has now fallen to 51.13, a level far below the average of 65-75 we were used to seeing just a few years ago in 2023 and 2024. This suggests silver may be getting overvalued relative to gold, and the ratio could be due for a rebound. A pairs trade, going long gold while shorting silver, could be a way to hedge against a sharp silver correction.
Given the rapid price increase, implied volatility on silver options has surged, making outright call purchases expensive. We believe a more prudent strategy for those expecting a pullback would be to buy put options. This offers a defined-risk way to profit from a potential short-term price drop without the unlimited risk of shorting futures contracts.
Looking at the futures market, the forward curve shows a steep contango, with prices for later-dated contracts significantly higher than the spot price. While this signals strong bullish sentiment, it increases the cost for us to roll long positions forward month after month. Traders holding long futures should be mindful of this “roll yield” cost, as it can eat into profits if the price starts to move sideways.
