Silver (XAG/USD) fell for a second straight session. It traded near $87.20 during Asian hours on Wednesday after dipping toward $87.00. The drop followed heavy selling in China, tied to the unwinding of leveraged positions and a pullback in retail speculation.
The Shanghai Futures Exchange tightened delivery rules and set delivery allocations to zero for many traders without approved hedging quotas. Silver also came under pressure from a stronger US Dollar, which makes it more expensive for buyers using other currencies.
China Liquidation And Positioning
Demand signals are mixed. Some solar manufacturers are switching from silver to copper to cut costs. At the same time, the market is still running a structural supply deficit, now heading into its sixth straight year. Demand from AI and electric vehicle sectors continues. Chinese domestic prices also traded at about a 10% premium, suggesting local tightness that is not fully reflected in global prices.
Policy news added uncertainty. President Donald Trump said duties would rise to 15% after a Supreme Court decision limited his emergency tariff powers. The US also imposed a 10% tariff on all non-exempt goods. Markets are watching for Trump’s State of the Union address ahead of US–Iran nuclear talks on Thursday.
The market is still absorbing the impact of last year’s large China-led liquidation. That selloff came from the rapid unwind of leveraged speculative positions on the Shanghai exchange, showing how fast sentiment can change. While the speculative excess is mostly gone, open interest in SHFE silver contracts has rebounded about 35% from the lows. This points to a return of more stable, long-term participants.
The shift from silver to copper in solar production remains a headwind, but it may be slowing. Newer N-type solar cell technology is more than 25% more efficient and requires more silver, which partly offsets the substitution trend. This supports longer-term demand, especially as the global structural deficit is now officially in its seventh consecutive year.
Macro And Strategy Outlook
The macro backdrop looks different from last year’s tariff disputes. The US Dollar Index has eased from its 2025 highs, down nearly 4%, as the Federal Reserve has signaled a clear pause in its tightening cycle. A softer dollar can support dollar-priced silver by improving affordability for overseas buyers.
With mixed signals, derivatives traders may look at strategies that can work in a range while still leaving room for upside. One approach is selling cash-secured puts below the current price, such as around $85, to collect premium while setting a potential entry level. Another is using long-dated call spreads to target gradual gains, driven by ongoing supply deficits and rising demand from EV and AI industries.
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