Silver’s Record Run Meets a Temporary Halt

A sharp correction has followed silver's extraordinary December rally, applying the brakes after a record-breaking surge. Having touched an all-time high of $83.62 per ounce, the metal faced significant selling pressure at the start of the week, coinciding with a slight easing in certain geopolitical risk factors. The key question for markets is whether this represents merely a necessary pause within an exceptionally powerful upward trend.

The backdrop for this volatility is a market defined by persistent physical tightness. For a fifth consecutive year, global silver demand is structurally outstripping supply. This fundamental deficit is vividly illustrated by plummeting inventory levels across major trading hubs:

• COMEX warehouse stocks have plunged by approximately 70% since 2020.
• Holdings in London vaults are down by roughly 40%.
• Inventories in Shanghai have sunk to their lowest point in a decade.

These figures underscore that the recent price explosion is not solely speculative but is supported by a tangible tightening of immediately available metal.

Profit-Taking After a Historic Surge

On Monday, silver retreated from its fresh peak of $83.62 to trade near $76 per ounce at one point—a decline of almost 5% from the intraday high. This pullback was primarily driven by profit-taking, according to Ricardo Evangelista, a senior analyst at ActivTrades. As the year draws to a close, many participants are opting to secure substantial gains following a historic rally that saw the price ascend from around $56 to over $80 per ounce throughout December.

Despite the setback, the annual performance remains staggering: a gain of approximately 166% year-to-date, with over 31% of that achieved in December alone. This significantly outpaces gold, which appreciated by about 72% over the same period.

China's Export Rules: A Looming Supply Shock

A central catalyst for the rally has been China's impending export restrictions, scheduled to take effect on January 1, 2026. The new policy will require companies to obtain government licenses to export silver, with stringent criteria including a minimum annual production of 80 tonnes and access to credit lines worth around $30 million.

These rules could effectively lock smaller and mid-tier suppliers out of the export market—a particularly consequential development given that China is estimated to control 60-70% of the global silver supply. Commenting on the plans via social media platform X, Tesla CEO Elon Musk stated succinctly, "This is not good. Silver is needed in many industrial processes," highlighting the metal's critical role beyond traditional precious metal investment.

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Industrial Demand Forms a Second Pillar

Silver's investment profile has been fundamentally reshaped by industrial consumption, which now accounts for an estimated 50-60% of total demand. Key growth sectors include:

• Solar panel manufacturing
• Electric vehicle production
• Semiconductor fabrication

In recognition of this strategic importance, the U.S. government has classified silver as a "critical mineral." The Commerce Department is currently assessing whether imports of such materials pose a national security risk, a review that could lead to new tariffs or trade barriers and further constrict supply channels.

Geopolitics and Policy Provide Headwinds

Recent developments have introduced mild headwinds for precious metals, often sought as safe-haven assets. On Sunday, U.S. President Donald Trump pointed to significant progress in Ukraine peace talks, stating he and Ukrainian President Volodymyr Zelenskyy were "very close" to a deal. Such signals temporarily reduce systemic fear and can dampen short-term demand for traditional defensive holdings.

Market attention is also focused on the upcoming release of the U.S. Federal Reserve's December meeting minutes. While traders are anticipating two interest rate cuts in the coming year—a dynamic typically supportive for non-yielding assets like silver—any unexpectedly hawkish tone from the Fed could dampen these expectations and exert downward pressure on prices.

A Broad Precious Metals Retreat

The correction extended beyond silver. Other metals also relinquished gains:
* Platinum fell 6% to $2,305 per ounce after marking its own record high at $2,478.
* Palladium lost approximately 13%.
* Gold declined 1.4% to $4,470 per ounce, though it remains near its historical peaks.

Analysts at UBS note that gold is trading at an elevated level. They see downside risks primarily if the Fed adopts a surprisingly strict stance or if significant outflows from gold-backed exchange-traded funds (ETFs) materialize.

Outlook: Pause or Reversal?

The current weakness in silver is widely viewed as a technical correction within a powerful bull trend. Short-term factors like profit-taking and modestly receding geopolitical tensions are applying pressure. However, the medium to long-term outlook continues to be shaped by the structural supply deficit, rapidly declining inventories, and robust industrial demand. The trajectory from here will likely be determined by the concrete market impact of China's 2026 export rules and the evolving monetary policy path of the Federal Reserve in the year ahead.