Silver Price Forecast: XAG/USD Eyes $59.50 as AI Demand and Supply Deficit Support Recovery

Quick overview

Silver (XAG/USD) was trading close to $57/oz on Tuesday, July 21, recovering from the previous week’s sell-off while traders balanced long-term bullish fundamentals against the weight of rising US treasury yields and a stronger US dollar. While silver is a precious metal, more than 55% of its demand comes from industrial uses and it is therefore also classified as an industrial metal.

The metal recently rallied on higher demand from solar and artificial intelligence (AI), though the metal was held back in the past weeks on a tighter monetary policy in the US.

Higher Yields Pressures Silver

The primary short-term bearish driver is the expectation that the US Federal Reserve can hold interest rates high for longer. After a better-than-expected US retail sales number and a more positive outlook in the US labor market, the market’s appetite for further interest rate cuts from the central bank is fading.

Moreover, oil continues trading close to $90/bbl for Brent and above $84/bbl for WTI, which may prompt worries that a renewed upswing in energy prices could reignite inflation and delay future rate cuts by the Fed.

Higher US treasury yields boost the opportunity cost of holding non-yielding investments such as silver, and a stronger greenback could make the precious metal more expensive to buyers located outside of the US. Although geopolitical tensions in the Middle East typically provide support for precious metals, risk is currently being priced in more on inflation fears rather than safe-haven sentiment.

Industrial Demand Remains Key for Silver

Despite the macroeconomic headwinds, the structural fundamentals of the market remain strong. According to the Silver Institute, fabrication of the precious metal is projected to hit close to 650Moz (million ounces) in 2026, representing a large majority of global consumption. The biggest growth continues to come from solar panels, electric vehicles, data centers for the emerging AI technologies, consumer electronics, and industrial automation.

It is estimated that the photovoltaic sector alone will soak up around 190-200Moz of silver in the coming year, or close to 20% of total worldwide demand.

In the same vein, the rapid growth of artificial intelligence infrastructure is driving additional consumption of silver. Advanced computing servers, networking hardware, semiconductor technology, and power supply management systems all utilize silver due to its excellent electrical conductivity.

Although industry players are looking at ways to replace the use of silver on solar cells with other materials, the growth record installations of new renewable energy projects and investments in AI technology are keeping the overall demand for the metal high.

Supply Shortage to Persist Until At Least 2026

Supply dynamics will also play a key role on the longer term. The Silver Institute estimates a 46Moz deficit in 2026, which would mark the sixth consecutive annual supply shortfall for silver. With global supply projected to be close to 1.03Boz (billion ounces) in 2026, and total demand likely exceeding 1.07Boz, global above-ground inventories are expected to decline.

Furthermore, the growth of the world silver supply may also remain slow. Around 70% of global silver output is produced as a by-product of copper, zinc, lead and gold mining, which means that even in a higher price environment, the precious metals producer base may be unable to ramp up output quickly in response to higher prices.

Investment Demand Will Follow the Yields

Physical investment demand was solid despite the recent price drop. According to the Silver Institute, demand for bar and coins around the world is forecast to be almost 18% higher in 2026, thanks in part to a surge in retail participation in North America. Exchange Traded Funds (ETFs) holdings, however, are likely to show a lackluster performance as long-term investors keep their eye on the inflationary outlook and the Fed’s monetary policy before adding new investment positions.

Investors have their eyes on the week’s US S&P Global Manufacturing and Services PMIs, as well as the weekly initial jobless claims and June new home sales in the US.

In addition, corporate earnings reports from tech leaders such as Alphabet and Tesla may provide investors with valuable insights on how fast investments into artificial intelligence technologies are accelerating. The data in the week will be important for the sentiment in the silver market as positive results would likely bolster the US treasury yields and the greenback, while weaker readings could have the opposite impact.

Silver Price Forecast

Technically, silver has made a strong recovery. Silver has broken out above a falling trendline and reclaimed support at $58.00, indicating that buyers have gained the upper hand following the previous week’s price drop.

The precious metal is currently testing $58.86, with a sustained close above this resistance exposing the 1.272 Fib extension at $59.49 and potentially the next level at $60.77. Resistance could initially be found at the 100 EMA ($59.24).

Silver has also continued to strengthen, with the RSI currently trading above the 70 level. That would suggest that demand continues to remain strong despite the overbought condition. Support should initially be found at the breakout level at $58.00, with potential next levels at $57.30 and the 50 EMA at $57.04.

Should sellers regain control of the market and silver break below these levels, the recovery could be short-lived and prices may retest the $56.83 level.

Silver remains a buy on the longer term, given the persistent supply deficits and the rising consumption from renewable energy and artificial intelligence sectors. If the US treasury yields weaken while the industrial consumption is still robust, the silver price could climb toward the $59.50 to $60.80 area in the coming sessions.

ABOUT THE AUTHOR See More

Arslan Ali Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Ali Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.

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