Bank of America has issued a bold forecast, projecting that silver prices could reach $65 per ounce by 2026. This outlook comes as the physical silver market, particularly in London, experiences extreme stress due to a severe shortage of available metal, pushing prices to new highs and creating significant dislocations between spot and futures markets.
Analysts report that the London Bullion Market Association (LBMA), a critical hub for global silver trading, is facing a near-lockdown situation. The demand for physical silver is far outpacing the available supply, a condition that has intensified a price rally that saw the metal gain two-thirds of its value in 2025.
Key Takeaways
- Price Target: Bank of America's commodity team has set a $65 per ounce price target for silver for 2026, anticipating a continued physical deficit.
- London Market Stress: The London silver market is described as being in a state of "seizure" due to a critical shortage of physical silver available for delivery.
- Supply Shortage: Inventories of silver held in London have fallen by one-third since 2021, leading to a significant premium for spot silver over futures contracts.
- Fundamental Drivers: The rally is supported by strong investor demand for precious metals as a hedge against currency debasement and silver's relative value compared to gold.
Bank of America Sets Ambitious 2026 Price Target
In a recent report, Bank of America's global commodity team expressed a strong bullish stance on precious metals. Lead analyst Michael Widmer and his team have established a $65 per ounce price target for silver to be reached by 2026. This represents a potential 30% rally from current levels.
The bank's forecast is based on the expectation of a persistent physical deficit in the market. While acknowledging that a short-term price correction is possible and that physical demand might see an 11% decline in 2026, Widmer maintains that supply will still fall short of demand.
This optimistic forecast was released as silver prices continued their upward trajectory. After breaking the significant $50 per ounce barrier, spot silver was trading near $51.50 on Monday, surpassing its previous record high set just last week.
Gold Also in Focus
Alongside its silver forecast, Bank of America also projected that gold prices could reach $5,000 per ounce by 2026. On Monday, gold prices were up 5.2%, trading at $4,091 an ounce.
Unprecedented Strain on the London Physical Market
The core of the current price surge is a severe squeeze in the physical market, centered in London. According to precious metals analyst David Jensen, the London Bullion Market Association is “effectively having a seizure.”
Jensen explained that the market has entered a state of lock-up because there is not enough physical silver to be delivered against the billions of dollars in spot contracts that have been executed. He noted that the amount of freely available silver is simply too small to meet the current wave of demand.
"The only resolution to the present squeeze is higher pricing, allowing the market to clear," wrote Jensen, highlighting the imbalance between paper contracts and deliverable metal.
This sentiment is echoed by other market experts. Ole Hansen, a commodity strategist at Saxo Bank, also described the situation in a recent report.
Hansen stated that “the London silver cash market has entered a period of pronounced stress” directly resulting from the shortage of available inventories. This has created a significant premium for physical silver in London compared to futures contracts traded on the Comex in Chicago.
Market Indicators Confirm Severe Shortage
The strain on supply is not just anecdotal; it is clearly visible in market data and logistics. The most direct evidence is the decline in available inventory.
London's Dwindling Stockpile
According to market data, the total inventories of silver held in vaults across London have decreased by a third since 2021. This long-term decline has set the stage for the current squeeze, leaving the market vulnerable to surges in demand.
The price difference between markets has become so extreme that traders are taking unusual steps to profit from it. A Bloomberg report on Monday noted that traders were actively booking cargo space on airplanes to fly physical silver bars to London to capitalize on the price disparity.
Backwardation Signals Urgent Demand
Further evidence of the intense physical demand is the market structure known as backwardation. This occurs when the spot price for immediate delivery is higher than the price of futures contracts for later delivery.
Typically, the silver market is in "contango," where futures prices are higher to account for storage and financing costs. The current state of backwardation indicates an urgent need for physical metal right now.
To illustrate the gap, at one point on Monday, the spot price for silver was $50.21 per ounce, while the December futures contract was priced at just $48.03.
Fundamental Factors Underpinning the Rally
While the physical squeeze is driving the immediate price action, the rally is built on a foundation of strong fundamental demand that has been growing throughout 2025. One of the main drivers is the so-called “debasement trade.”
Investors have been increasingly turning to precious metals like silver and gold as a store of value and a hedge against the declining purchasing power of fiat currencies, particularly the U.S. dollar.
Silver has also benefited from the powerful rally in gold prices. Historically, silver often follows gold's lead but can have more volatile price swings. The current gold-silver ratio, which measures how many ounces of silver it takes to buy one ounce of gold, provides another bullish signal.
- Current Ratio: 81x
- 20-Year Average Ratio: Approximately 70x
According to Saxo Bank's Hansen, this gap suggests that silver remains undervalued relative to gold and has significant room to appreciate further to close the historical gap.
