Down 48% from peak, but silver still beats gold, equity to post best 5-year returns. Time to buy?

Silver may have lost some of its shine after a stellar run earlier this year, but the white metal continues to lead all major asset classes on a five-year annualised return basis. Despite investors booking profits after silver surged to $122 in January amid soaring oil prices and renewed concerns over interest rate hikes, the metal has delivered a 5-year CAGR of 27%, according to a report by 1 Finance Research. For 2026, silver has corrected 48% from its peak.

That puts silver ahead of gold, which posted a 25% CAGR over the same period. Silver also had a remarkable 2025, when it surged more than 170%. Over the five years between June 2021 and June 2026, silver and gold delivered the highest annualised returns among the asset classes tracked, at 27% and 25%, respectively, ahead of midcaps at 17% and smallcaps at 16%. However, neither precious metal topped the performance charts in every individual year.

What’s troubling silver in 2026?

The biggest trigger behind silver’s slide has been worries of higher US interest rates. Even though it appears Fed won’t hike rates in September, a possibility can’t be ruled out. Fed policymakers voted 9-3 last month to leave the U.S. central bank’s benchmark interest rate in the 3.50%-3.75% range, where it has been since December.

In the two weeks since that decision, the three dissenters at ‌that meeting and ⁠a couple of other Fed regional bank presidents who do not have a vote this year on policy have made the case for a rate hike given still-too-high inflation.

Another major factor behind the decline has been demand destruction at elevated prices. Unlike gold, silver carries a substantial industrial demand component across sectors such as solar panels, semiconductors, electric vehicles, batteries, electronics, AI infrastructure and green energy systems. When prices rise too rapidly, industrial buyers often temporarily delay procurement or reduce purchases, creating short-term pressure on the market.
The sharp correction follows a historic rally in precious metals over the past several months. Gold and silver hit record highs in late January, with gold climbing to about $5,600 an ounce and silver touching about $121.
Will silver bounce back again?

Fundamentally, silver continues to enjoy strong tailwinds. Demand from sectors such as solar energy, electric vehicles and electronics remains robust, while supply-side constraints support its constructive medium- to long-term outlook. That said, its higher volatility cannot be ignored. Experts suggest a staggered accumulation strategy may be more prudent, allowing investors to balance its higher return potential with the need for risk management.

“We reiterate investing in silver over supportive fundamentals and market uncertainties. Any decline in prices over dollar rally or ease in tensions provides opportunity to accumulate or invest in silver,” Tata Mutual Fund said in a report.

The report added that corrections after a sharp and extended rally are natural and do not weaken the long-term bullish outlook for precious metals. In silver’s case, the structural fundamentals remain firmly in place despite the recent pullback.

A major driver continues to be strong and rising industrial demand, which accounts for more than 60% of total silver consumption. Growing usage across multiple sectors, along with steady investment demand from China, is expected to keep prices supported at elevated levels over the medium to long term.

At the same time, supply conditions remain tight. Silver has been in a supply deficit for five consecutive years and has now entered its sixth year of structural shortfall. Export restrictions and declining inventories on the Shanghai Futures Exchange, which are currently near decade lows, highlight the strain on physical availability.

This persistent imbalance between demand and supply remains a significant positive for market sentiment and continues to support a constructive long-term outlook for silver prices.

Ponmudi R, CEO of Enrich Money, echoed a similar view and said that despite geopolitical tensions and elevated crude prices, silver remains more of an industrial metal than a defensive asset. He advised investors to avoid aggressive fresh buying and instead adopt a staggered accumulation strategy near strong support zones with a medium- to long-term investment horizon.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)