Gold and silver prices moved in opposite directions during Asian trade, as profit booking weighed on gold while silver extended its sharp rally amid tightening physical supplies and structural market stress. Gold prices eased with spot gold falling 0.4% to $4,535.50 per troy ounce, while silver gained 3% to $79.87 per ounce.

Gold Faces Profit Booking Pressure

Jateen Trivedi, VP Research Analyst – Commodity and Currency at LKP Securities, said gold weakened as traders booked profits after the recent rally. The decline followed recent volatility after prices failed to sustain levels above key resistance zones.

According to Trivedi, gold remains volatile as markets reassess positions, with the US Federal Reserve's meeting minutes emerging as a key near-term trigger. He added that thin volumes during the US holiday period could keep price swings elevated.

Silver Continues Structural Rally

In contrast to gold's decline, silver prices continued their exceptional performance with spot silver gaining 3% to $79.87 per ounce. The white metal has crossed $75 on COMEX and rose above ₹2.30 lakh in the domestic market, marking gains of more than 160% for the year.

According to Motilal Oswal Financial Services Ltd.'s Commodities Insight report titled "Silver Unchained!!!", silver's rally reflects a structural shift rather than a conventional bull cycle. The report attributes the price surge to prolonged physical supply deficits, declining inventories, policy-led supply constraints, and sustained industrial and investment demand.

Supply Stress Drives Market Dynamics

Navneet Damani, Head of Research – Commodities at Motilal Oswal Financial Services, said the silver market moved into a structural phase driven by inventory depletion and physical scarcity. He pointed to a widening disconnect between paper pricing and physical availability, highlighting deeper stress in global price discovery mechanisms.

The report noted sustained drawdowns in silver inventories across major hubs, including COMEX and Shanghai, stressing a global shortage of deliverable metal rather than a regional imbalance. China's role as a major refiner and net importer has also influenced the market, with physical inventories falling to decade-low levels.

Manav Modi, Commodities Analyst at Motilal Oswal Financial Services, said persistent inventory declines and weakening arbitrage between Shanghai and COMEX have exposed limited availability of physical silver. He added that sustained premiums in physical markets reflect genuine supply tightness rather than temporary pricing inefficiencies.

Market Outlook and Targets

While Motilal Oswal noted that its initial COMEX silver target of $75 has been achieved, it reiterated a target of $77, equivalent to ₹2.46 lakh per kg in the domestic market, subject to evolving market conditions. Proposed export licensing requirements are expected to further restrict global supply from January 2026.

Despite gold's recent pullback, both precious metals have benefited from investors seeking safe-haven assets amid geopolitical tensions, concerns around US fiscal stability, and expectations of further interest rate cuts by the Federal Reserve, which have pressured the US dollar.

Silver has delivered one of the most spectacular performances in global commodity markets, with prices nearly doubling since August and pushing the precious metal to record highs. The rally has allowed silver to significantly outperform gold, but market experts warn that such dramatic price increases rarely conclude without equally sharp reversals.

Tariff Fears Drive Unprecedented Rally

The current surge stems from an unusual catalyst: fears surrounding potential US tariffs that have yet to be officially announced. A critical minerals review launched by the US Department of Commerce under Section 232 raised the possibility of import duties ranging from 15% to 50% on silver. Rather than waiting for policy clarity, traders acted pre-emptively, shipping large quantities of silver from London to New York to avoid potential levies.

This massive movement created severe market disruptions:

Global Market Disruptions

The shortage effects rippled across international markets. In India, physical silver scarcity coinciding with the Diwali festival pushed local premiums to extraordinary levels. Exchange-traded funds experienced record inflows but struggled to source adequate metal supplies, forcing temporary suspension of new subscriptions.

While pressures initially eased when silver began arriving in US markets, similar patterns emerged elsewhere. In mid-December, speculative buying in China forced UBS's silver ETF—the country's largest—to halt new subscriptions, followed by a 10% single-session price decline.

Industrial Demand Creates Double-Edged Impact

Industrial applications now account for approximately 58% of silver demand, primarily from solar panels, electric vehicles, and electronics. However, this growing industrial reliance may paradoxically limit further price appreciation. Silver's share of solar panel manufacturing costs has increased dramatically:

This cost escalation is eroding manufacturer margins and prompting searches for alternatives or reduced usage patterns, making demand increasingly price-sensitive at current elevated levels.

Historical Patterns Signal Caution

Manish Banthia, CIO Fixed Income at ICICI Prudential Mutual Fund, points to silver's volatile history as a cautionary tale. The metal occupies an unusual market position, generating no income like equities or bonds while being heavily influenced by speculative positioning, making it comparable to cryptocurrencies in volatility.

Historical precedents reveal concerning patterns:

Timing and Valuation Concerns

The Section 232 report, originally expected in October 2025, has faced delays. Once published, the President will have up to 90 days to decide on tariff implementation. Regardless of the final decision, resolution of this uncertainty should eliminate incentives for US silver hoarding, potentially easing shortages and reversing speculative positions.

From an Indian investment perspective, silver's relative valuation against domestic equities has reached extreme levels. Two years ago, silver appeared inexpensive relative to the Nifty index, but current conditions have decisively shifted in favor of equities.

Market Outlook

Banthia emphasizes that silver's long history of violent reversals warrants significant caution. In speculation-driven markets, compelling narratives can unravel with surprising speed once momentum breaks. Past cycles suggest potential declines of 50% or more when speculative positioning reverses, making timing critical for investors. Record prices alone do not guarantee lasting returns, particularly in assets prone to such dramatic volatility swings.

Banthia warns that historical patterns suggest a potential decline of 50% or more once speculative momentum breaks. He notes that silver prices have nearly doubled since August on US tariff fears, but cautions that such dramatic increases often precede sharp reversals. Investors should be aware of the risks associated with silver's volatile nature and its susceptibility to rapid price changes driven by speculative positioning.