Rapidly increasing industrial and military demand for silver is depleting global inventories, and the rate may well accelerate quickly.
Silver demand has outstripped supply for three straight years and the Silver Institute projects another market deficit this year.
In 2023, the silver market charted a structural deficit of 184.3 million ounces. The projection is for an even larger supply shortfall this year in the neighborhood of 215 million ounces. This would be the second-largest silver market deficit ever recorded.
According to an article published by the Jerusalem Post, surging demand coupled with declining mine output “could have far-reaching implications for markets, investors, and industries reliant on the precious metal.”
“As the clock ticks towards 2025, the global market braces for the profound impact of industrial and military silver demand on inventories. Stakeholders across sectors must navigate this evolving landscape with strategic foresight and innovation to mitigate the looming supply crunch.”
Rapidly rising industrial demand, specifically in the solar energy sector, is driving the growing market deficits.
Industrial demand for silver set a record of 654.4 million ounces in 2023 and it is expected to hit new highs this year. According to The Silver Institute, ongoing structural gains from green economy applications underpinned this surge in silver demand.
“Higher than expected photovoltaic (PV) capacity additions and faster adoption of new-generation solar cells raised global electrical & electronics demand by a substantial 20 percent. At the same time, other green-related applications, including power grid construction and automotive electrification, also contributed to the gains.”
According to a research paper by scientists at UNSW, solar manufacturers will likely require over 20 percent of the current annual silver supply by 2027.
By 2050, solar panel production will use approximately 85–98 percent of the current global silver reserves.
Demand for silver is also growing in the tech sector due to its conductivity and reflectivity.
Meanwhile, militaries around the world are using more silver. According to the Jerusalem Post, “Silver’s use in advanced defense systems, including weaponry, communication devices, and surveillance equipment, is crucial due to its superior electrical conductivity and resistance to corrosion.”
Even as demand increases, silver mines are producing less silver and there are fewer discoveries of new deposits. According to the Jerusalem Post, “The exploration of new silver deposits is becoming increasingly difficult and costly.”
“As high-quality ores become scarcer, mining companies face challenges in maintaining production levels.”
SBC Global Research projects that “without substantial investment in new mining projects or recycling initiatives, the silver market may face a notable supply-demand imbalance by mid-decade, potentially driving up prices and intensifying competition for this essential metal.”
The Post highlighted three market implications of this silver supply crunch.
- Price volatility
- Investment opportunities
- Supply chain strain
Silver isn’t currently priced for this dynamic.
In fact, silver is significantly undervalued compared to gold. The current gold-silver ratio is just over 88-1. That means it takes over 88 ounces of silver to buy an ounce of gold.
To put that into perspective, the average in the modern era has been between 40:1 and 60:1. Historically, the ratio has always returned to that mean. And when it does, it does it with a vengeance. The ratio fell to 30-1 in 2011 and below 20-1 in 1979.
Given the current silver price, the silver-gold ratio, and the supply and demand dynamics, silver appears to be on sale.