The global silver market is entering its sixth consecutive year of supply deficit, but the underlying mechanisms of the shortage have fundamentally changed.
According to the Silver Institute Latest World Silver SurveyCreated with London-based consultancy Metals Focus, the market is projected to record a shortfall of 46.3 million ounces (moz) in 2026, rising to a shortfall of 40.3 million ounces in 2025.
While headline deficits persist, the structure of global demand is changing. Sustained high prices are forcing solar panel manufacturers and jewelry fabricators to actively cut costs from their supply chains.
However, the industrial decline is being completely offset by the massive influx of retail capital into physical coins, bars and exchange-traded products (ETPs).
The result is a market characterized by depletion of above-ground reserves and extreme price volatility.
“The important thing, however, is that the market has clearly entered an era of short stocks,” the Silver Institute said in the report. “Tightness will not remain constant, but liquidity will generally be lower, lease rates will be more volatile and price fluctuations are likely to be greater than investors are accustomed to.”
Lack of liquidity and surge in prices
This changing dynamic has been stress-tested over the last fifteen months.
The average price of silver in 2025 was just over US$40 per ounce, an increase of 42 percent year-over-year. But annual averages obscure the highly irregular trade trajectory.
For most of 2025, macroeconomic fears over US tariffs and the Iran war kept investors in gold, driving the gold-to-silver ratio to a peak of 107:1 in April.
But as the year progressed, limited physical availability and strong base metals prices in London prompted a sudden move into silver. By December, the metal rose to US$84 an ounce, taking the ratio below 55:1 – its lowest point since 2013.
The rapid flow of capital led to a liquidity crunch in October. As investors pulled metals out of CME vaults and ETPs, the physical supply chain for refiners and manufacturers began to break down.
That tension spilled over into early 2026. The combination of US policy uncertainty and retail enthusiasm pushed silver to an all-time high above US$121 on January 29. Product shortages became common, and premiums on physical bars increased.
However, the rally was exceptionally fragile. triggered by Enrollment Due to an aggressive US Federal Reserve chairman, long positions were quickly liquidated, causing prices to fall 38 percent in a single day.
By the end of March, silver had reached a high of US$60 amid inflationary pressures from the Iran war and a stronger US dollar.
deviation of demand
The violent price action has left a distinct mark on the global demand profile, driving price-sensitive buyers out of the market. Total global demand is projected to fall 2 percent to 1,130.6 mos in 2025, and the institute forecasts further weakness this year.
Industrial consumption, the traditional mainstay of the silver market, fell 3 percent last year to 657.4 moz. The contraction was heavily concentrated in the photovoltaic (PV) sector. Faced with shrinking margins and higher raw material costs, solar panel makers have stepped up efforts to pull silver from their production lines and sell silver in its place.
This PV drag is expected to reduce industrial demand by a further 3 percent to 639.6 MW in 2026. While applications involving artificial intelligence (AI) data centers, high-speed transmission hardware, and automotive electronics continue to grow, they lack sufficient volume to compensate for the solar industry’s deliberate retreat.
A similar decline is being seen in consumer demand. Global jewelery manufacturing is projected to decline by 8 per cent in 2025 and by 16 per cent this year to a five-year low of 159.4 mos. The demand for silver utensils is expected to decline by 20 percent in 2026.
Still, the market remains in the red as financial buyers continue to absorb whatever the metals industry leaves behind.
Global coin and net bar demand grew 14 per cent in 2025, supported by a 33 per cent rise in physical investment in India, while ETPs recorded net inflows of 68.3 mos.
The institute expects this pace to accelerate in 2026, with physical investment projected to increase by 18 percent to the highest level since 2022. This growth will be largely driven by the US, where retail demand is expected to grow by 57 percent.
Windfall for primary producers
While consumers and industrial producers hesitated at silver above US$40, the mining sector took advantage of the price environment to drive a massive financial turnaround.
Global mined silver supply remained relatively stable, rising only 3 percent to 846.6 moz in 2025. Rising production from operations in Peru, Chile and Russia barely offset a decade of low production prints in North America, which suffered from operational disruptions and declining grades in Mexico.
But global average all-in sustaining costs (AISC) actually fell 1 percent to US$12.21 an ounce, with the lack of volume growth completely offset by margin expansion. Global AISC margins for primary silver producers rose 75 per cent to US$27.81 an ounce.
The financial impact was immediate. According to a peer group analysis of seven major primary silver producers, including Coeur Mining (NYSE:CDE), Hecla Mining Company (NYSE:HL), and Pan American Silver (TSX:PAAS,NYSE:PAAS), combined revenues rose 48 percent to a multi-decade high of $15.1 billion. More importantly, total free cash flow increased 226 percent to US$4.3 billion.
The streaming and royalty sector followed a similar trajectory. Following year-end, Wheaton Precious Metals (TSX:WPM,NYSE:WPM) implemented a US$4.3 billion transaction The deal to acquire BHP’s (ASX:BHP, NYSE:BHP, LSE:BHP) 33.75 per cent stake in Antamina’s silver production is expected to add approximately 6.0 mos of silver annually to Wheaton’s books over the next five years.
looking ahead
As the market moves towards 2026, the supply side offers little respite to the current deficit.
Global mined silver supply is estimated to have declined 0.3 percent to 844.1 moz. On the other hand, encouraged by higher prices, recycling volumes are expected to increase by 7 percent this year, driven mainly by an 8 percent increase in industrial scrap.
However, as seen in 2025, refinery bottlenecks remain a structural constraint on how quickly scrap metal can be reintroduced to the market.
Ultimately, the Silver Institute projects that the structural deficit will gradually decline in the years after 2026. But until a slow rebalancing occurs, the silver market remains tied to physical investor appetite.
This is an updated version of an article first published by the Investing News Network in 2024.
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Securities Disclosure: I, Gian Liguid, do not have any direct investment interest in any of the companies mentioned in this article.
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