The growing deficit in the silver market, partly due to tariff concerns, is not the only reason for the XAGUSD rally. The debasement trade is thriving not only in gold but also in other precious metals. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The rally in XAGUSD quotes is driven by a reduction in stocks.
- Lease rates and premiums are recovering.
- The silver market is facing a deficit.
- Long trades on the XAGUSD can be opened with the targets of $53 and $56.
Monthly Fundamental Forecast for Silver
Initially, silver appears to be a strong investment. An increase in global economic activity typically fosters growth in industrial demand. The market’s recent slowdown has led to an increased demand for safe-haven assets. The XAGUSD has experienced significant fluctuations throughout its history, but 2025 has been a particularly remarkable year for silver. Since January, its price has soared by nearly 77%, reaching unprecedented levels.
Many investors believe that the reasons for silver’s success lie in market shortages. Due to the stable supply of solar panels and jewelry, along with the growing demand for these products, there has been a decline in land-based stocks in London. The situation worsened in early 2025 when rumors of tariffs triggered an outflow of bullion to New York.
Silver Stocks in London Vaults
Source: Bloomberg.
The London Bullion Market Association controls storage facilities containing approximately 790 million ounces of silver and 284 million ounces of gold. However, silver is significantly cheaper: it is valued at $40 billion, compared to $1.1 trillion for the sector leader. According to Goldman Sachs estimates, the silver market is nine times smaller than the gold market, which leads to more extreme fluctuations. As a result, the XAGUSD will likely outperform the XAUUSD in 2025.
The decline in London stocks led to a surge in lease rates and premiums compared to New York. As arbitrage trading developed, both indicators began to fall.
Silver 1-Month Lease Rate
Source: Bloomberg.
London-Comex Spread
Source: Bloomberg.
Notably, the silver market has been experiencing a deficit since 2020. Rumors of tariffs and India’s rapid demand for alternatives to expensive gold have exacerbated this trend. However, the primary catalyst for the XAGUSD rally is the debasement trading, not the state of the market.
Bank of America has revised its silver price forecast for the end of 2026, adjusting it from $44 to $65 per ounce. This revision is attributed to persistent market shortages, widening fiscal gaps, and lower central bank rates. Citigroup has revised its forecast for the price of silver, now predicting it will reach $55 by the end of 2025, up from its previous estimate of $45. The positive outlook is informed by geopolitical factors and concerns regarding the Fed’s independence.
Silver is benefiting from the same main advantages as gold, namely the loss of confidence in fiat currencies and government bonds. However, due to its smaller market size and liquidity, it is growing faster. The deficit in the silver market is also helping to explain the outperformance of XAGUSD over XAUUSD.
Monthly Trading Plan for XAGUSD
Notably, nothing is expected to change in the near future. The US shutdown and a trade war between the US and China have introduced new drivers for silver. Investors are expected to maintain their purchases of the XAGUSD, as they are inclined to interpret information in a manner that aligns with their expectations. Silver has managed to hit the first bullish target of $51.7. The next target of $53 per ounce is within reach. In fact, silver may surge to $56. The recommendation is to buy.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of XAGUSD in real time mode
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