Silver retreated sharply after smashing through $80 an ounce for the first time, with traders taking profits from a record-breaking rally powered by a structural imbalance in supply and demand.
The white metal fell as much as 5% on Monday, after earlier spiking to a record $84 an ounce following five straight days of gains. A weaker dollar and escalating geopolitical tensions have added to the appeal of precious metals during an end-of-year jump to all-time highs for silver, gold and platinum.
“Make no mistake: we are witnessing a generational bubble playing out in silver,” said Tony Sycamore, a market analyst at IG Australia.
Read More: Why Silver Has Been Surging Even More Than Gold
Silver’s rapid acceleration caps a yearlong rally for precious metals driven by elevated central-bank purchases, inflows to exchange-traded funds and three successive rate cuts by the US Federal Reserve. Lower borrowing costs are a tailwind for the commodities, which don’t pay interest, and traders are betting on more rate cuts in 2026.
In the last week, frictions in Venezuela — where the US has blockaded oil tankers — and strikes by Washington on Islamic State in Nigeria have added to the haven appeal of precious metals. The Bloomberg Dollar Spot Index, a key gauge of the US currency’s strength, fell 0.8% last week, its biggest weekly drop since June. A weaker dollar is generally supportive of gold and silver.
Silver is outshining gold for several reasons. For one, the market is thinner. Tighter inventories and liquidity that can evaporate quickly; while the London gold market is underpinned by around $700 billion of bullion that can be lent out in the event of a liquidity squeeze, no such reserve exists for silver. That historic supply squeeze happened in October.
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“The dominant driver of late has been a severe structural supply-demand imbalance in silver, sparking a scramble for physical metal,” said Sycamore. “Buyers are now paying a remarkable 7% premium for immediate delivery compared to waiting a year.”
Vaults in London have drawn sizable inflows since the October squeeze, but this has led to shortages elsewhere. In China, silver kept in warehouses linked to the Shanghai Futures Exchange last month hit the lowest level since 2015.
Added to that, much of the world’s readily available silver remains in New York as traders await the outcome of a US Commerce Department probe into whether imports of critical minerals pose a national security risk. The review could pave the way for tariffs or other trade curbs on the metal.
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Unlike gold, silver also has many useful real-world properties that make it a valuable component in a range of products like solar panels, AI data centers and electronics. With inventories near their lowest on record, there’s a risk of supply shortages that could impact multiple industries.
This prompted Elon Musk on Saturday to respond to a series of tweets on the supply shortage by saying on X: “This is not good. Silver is needed in many industrial processes.”
Technical indicators show the rally in silver may have run too hard, too fast. The metal’s 14-day relative strength index showed a reading of almost 80, far above the 70 that is considered to be overbought.
Spot silver rose as much as 6% to a high of $84.00 an ounce before crashing 3.6% to trade at $76.47 as of 8:38 a.m. in Singapore. Gold fell 0.9% to $4,495.73 an ounce, below a record of $4,549.92 hit on Friday. Platinum and palladium both retreated after hitting records in the previous session.
This story was originally featured on Fortune.com