Silver's long-term bull case is intact despite its worst quarter since early 2020, according to Sprott's Paul Wong. Persistent supply deficits, expanding industrial and monetary demand, and tight physical inventories give the metal several routes to higher prices, even after June's sharp selloff.
Silver's structural bull case survived a brutal quarter, and Sprott market strategist Paul Wong argues the metal still has multiple routes to higher prices. Wong points to ongoing supply deficits, rising industrial and monetary demand, and tight physical conditions as the foundation.
The pain was real. Silver fell $16.57 an ounce, or 22.04%, in the quarter ended June 30 — its worst quarter since the first quarter of 2020. Wong noted that June's decline was silver's largest monthly drop since September 2011, tracking gold's plunge and driven by the same macro forces, an expectedly hawkish Fed raising short-term rates and the U.S. dollar.
Options unwind drove the swing
Wong attributed much of both the rally and the crash to positioning. Massive bets in the options market played a big part in silver's parabolic rally, and unwinding those positions magnified the decline that followed. According to Kitco News, Wong said: "it's more of a meme stock than a commodity in the short term" until those positions clear.
That froth is now fading. Wong said call option open interest reached four or five standard deviations above its norm at the peak and has since returned close to the mean. He views the normalizing options market as encouraging for the metal's near-term stability.
Supply stays tight, demand keeps growing
The fundamentals, Wong argues, never broke. He said the silver market has run persistent structural deficits for several years, steadily drawing down inventories, with few large new mining projects to change the medium-term outlook. Sprott projects those deficits will likely continue for another seven or eight years.
Demand, meanwhile, spans several secular trends. Wong cited solar panel manufacturing, electrification, electric vehicles, AI infrastructure and data centers as sources of industrial demand, with military consumption also becoming more important across defense supply chains. Monetary demand is rising alongside gold as an alternative store of value. Wong also framed silver as a higher-beta expression of the themes supporting the gold market.
Sharp drawdowns, he added, are a normal feature of silver bull markets given its smaller, less liquid market and greater volatility than gold. For traders weighing the metal, Sprott sees its mix of deficits, industrial demand and monetary relevance as offering multiple avenues for future appreciation.
Source: KITCO
Trading involves risk.
Risk Disclaimer
