Silver Volatility Explodes: Tariff Reprieve and Demand Destruction Fears

Silver (XAG/USD) witnessed a dramatic session of two-way volatility, plunging over 7% before paring losses to close down roughly 1%, as traders reacted to shifting US trade policies and concerning developments in industrial demand.

Tariff Risk Premia Evaporates

The primary catalyst for the sharp sell-off was the announcement that the Trump administration is pausing plans to impose immediate tariffs on critical minerals, opting instead for bilateral negotiations. Speculators who had piled into Silver—anticipating supply chain disruptions—rapidly unwound long positions. The removal of the immediate tariff threat triggered a liquidity flush, sending spot prices tumbling from near-record highs.

The 'Thrifting' Threat

While policy noise drives short-term flows, a more systemic risk is emerging in the photovoltaic (PV) sector, Silvers largest industrial consumer.

• Cost Pressure: With Silver prices recently touching $93/oz, the metal now accounts for nearly 29% of the cost of a solar cell, up from just 14% last year.
• Substitution: Major manufacturers like Longi Green Energy are accelerating the transition to copper-based alternatives.
• Demand Destruction: Analysts predict the PV sector's silver consumption could drop by 17% in 2025 as “thrifting” (using less metal per unit) moves from theory to production reality.

Technicals

Technical analysts at StoneX note that while the tariff news caused a washout, the physical market remains tight. However, the dual headwinds of reduced geopolitical risk premium and industrial demand destruction suggest the “one-way traffic” rally for Silver may be transitioning into a volatile consolidation phase. The Gold/Silver ratio has dipped to near 50, a level often signaling that Silver is historically expensive relative to Gold, inviting mean reversion.