**Silver as a Yieldless Asset** Silver prices are influenced by various factors, particularly economic conditions. When interest rates are low, silver prices often rise because it doesn’t yield interest. The strength of the US Dollar also plays a role; a strong dollar can keep silver prices down. Silver is used in many industries, especially electronics and solar energy, which affects its price. Demand from major economies like the US, China, and India is significant, with India’s jewellery demand particularly impacting prices. Typically, silver prices move in line with gold prices. The Gold/Silver ratio helps assess how the two metals compare in value, and shifts in this ratio may show if one is undervalued compared to the other. **A Continuation of the Silver Rally** Silver has surged to an impressive $95 an ounce, continuing a strong rally that started last year. This increase is driven by the Federal Reserve’s aggressive rate cuts throughout 2025, which weakened the dollar and boosted interest in hard assets. The 33% gain just three weeks into 2026 indicates strong momentum, so traders need a clear strategy. The fundamentals are solid, thanks to rising industrial demand, which has created a strong price floor. Back in 2024, The Silver Institute projected that demand for photovoltaic technology would consume over 20% of the total silver supply by 2026, and this is now a reality. Ongoing demand from the green energy and electronics sectors is a key reason this rally differs from past speculative bubbles. However, the Gold/Silver ratio has dropped to 51.13, significantly below the average of 65-75 we saw in 2023 and 2024. This suggests silver might be overvalued compared to gold, indicating the ratio may rebound. A pairs trade—buying gold while shorting silver—could act as a hedge against a potential sharp correction in silver prices. Due to the rapid price rise, implied volatility for silver options has increased, making outright call purchases costly. For those anticipating a pullback, buying put options may be a wiser strategy. This way, they can profit from a potential short-term price drop with defined risks, avoiding the unlimited risks associated with shorting futures contracts. In the futures market, the forward curve shows steep contango, with prices for future contracts much higher than the spot price. While this shows strong bullish sentiment, it raises costs for rolling long positions month after month. Traders with long futures should consider this “roll yield” cost, as it can cut into profits if prices start to stabilize. Create your live VT Markets account and start trading now.

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