After one of the strongest runs in the commodity market, silver is starting to wobble.
The white metal is now trading around US$73 an ounce, down almost 16% over the past 7 days. The pullback has taken some heat out of the rally, but it hasn't changed how far silver has already moved.
Silver was trading around US$20 an ounce in 2022 before surging past US$120 an ounce earlier this year. Even after the latest fall, it remains at levels that would have looked extreme only a few years ago.
Nonetheless, billionaire resources investor Eric Sprott has a very different view.
According to The Australian, Sprott recently told Forbes he believes silver could easily climb to US$200, or even US$300 an ounce.
Sprott is a long-time precious metals investor who has been buying into the sector since the 1980s.
Forbes has estimated his fortune at about $8 billion.
Image source: Getty Images
Why Sprott is still bullish
Sprott's view is built around the simple supply and demand argument.
He believes the silver market is facing a major shortfall, with demand running well ahead of mine supply.
The demand is not just coming from investors buying silver as a precious metal. A lot of the interest is also tied to silver's industrial uses, including solar panels, electric vehicles, consumer electronics, data centres, and other modern technologies.
This is the main difference with gold. The yellow metal is more heavily driven by investment demand, central bank buying, and safe-haven interest. Silver has those same precious metal qualities, but it's also tied to parts of the economy where demand has been growing.
Sprott also pointed to what he sees as large short positions in the silver market.
If the price changes course and keeps rising, some traders may be forced to buy silver back, which will add more pressure to the upside.
Why the silver trade remains risky
Even with Sprott taking a bullish view, the latest fall is still a reminder of how volatile silver can be.
A move from more than US$120 an ounce to around US$73 is a big drop, even if the metal remains well above its 2022 levels.
For investors, this makes the current setup more complicated. A tighter silver market may support the longer-term outlook, but short-term moves can still be driven by profit-taking, the US dollar, and bond yields.
The interest in silver is still there, but the past week has been a reminder that momentum can fade pretty quickly.
