Silver Institute: Sustained Supply Deficit Exposes Market to Squeezes

Liquidity squeeze and a price whiplash

This shifting dynamic was stress-tested over the past fifteen months.

Silver averaged just over US$40 per ounce in 2025, a 42 percent year-on-year increase. But the annual average obscures a highly erratic trading trajectory.

For much of 2025, macroeconomic fears surrounding US tariffs and the Iran war kept investors anchored to gold, pushing the gold-to-silver ratio to a peak of 107:1 in April.

But as the year progressed, constrained physical availability in London and robust base metal prices prompted a sudden rotation into silver. By December, the metal surged to US$84 per ounce, driving the ratio below 55:1—its lowest point since 2013.

The rapid inflow of capital triggered a liquidity squeeze in October. As investors pulled metal into CME vaults and ETPs, the physical supply chain for refiners and manufacturers began to fracture.

That tension spilled into early 2026. A combination of US policy uncertainty and retail fervor pushed silver to an all-time high above US$121 on January 29. Product shortages became common, and premiums on physical bars jumped.

The rally, however, was exceptionally fragile. Triggered by the nomination of a hawkish US Federal Reserve chairman, long positions liquidated rapidly, causing prices to crash 38 percent in a single day.

As of late March, silver had settled into the high-US$60s, caught between the inflationary pressures of the Iran war and a stronger US dollar.

The demand divergence

The violent price action has left a distinct mark on the global demand profile, forcing price-sensitive buyers out of the market. Total global demand fell 2 percent to 1,130.6 Moz in 2025, and the Institute projects further weakness this year.

Industrial consumption, the traditional bedrock 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 high raw material costs, solar panel manufacturers accelerated efforts to thrift and substitute silver out of their production lines.

This PV drag is expected to pull industrial demand down another 3 percent in 2026, to 639.6 Moz. While applications tied to artificial intelligence (AI) data centers, high-speed transmission hardware, and automotive electronics continue to grow, they lack the sheer volume to offset the solar industry's deliberate retreat.

Consumer demand is experiencing a similar erosion. Global jewelry fabrication dropped 8 percent in 2025 and is projected to plunge a further 16% this year to a five-year low of 159.4 Moz. Silverware demand is slated to fall 20 percent in 2026.

Yet, the market remains in deficit because financial buyers continue to absorb whatever metal industries leave behind.

Global coin and net bar demand rose 14 percent in 2025 supported by a 33 percent jump in physical investment in India, while ETPs recorded net inflows of 68.3 Moz.

The Institute expects this momentum to accelerate in 2026, forecasting an 18 percent increase in physical investment to the highest level since 2022. That growth will be driven largely by the US, where retail demand is expected to rebound by 57 percent.

A windfall for primary producers

While consumers and industrial manufacturers hesitate at US$40-plus silver, the mining sector leveraged the price environment to orchestrate a massive financial turnaround.

Global mined silver supply remained relatively stagnant, increasing just 3 percent to 846.6 Moz in 2025. Rising output from operations in Peru, Chile, and Russia barely offset a decade-low production print in North America, which suffered from operational disruptions and declining grades in Mexico.

But with global average all-in sustaining costs (AISC) actually falling 1 percent to US$12.21 per ounce, the lack of volume growth was entirely overshadowed by margin expansion. Global AISC margins for primary silver producers widened by 75 percent to US$27.81 per ounce.

The financial impact was immediate. According to a peer group analysis of seven major primary silver producers, which included Coeur Mining (NYSE:CDE), Hecla Mining Company (NYSE:HL), and Pan American Silver (TSX:PAAS,NYSE:PAAS), combined revenue rose 48 percent to a multi-decade high of US$15.1 billion. More importantly, aggregate free cash flow surged 226 percent to US$4.3 billion.

The streaming and royalty sector followed a similar trajectory. Post-year-end, Wheaton Precious Metals (TSX:WPM,NYSE:WPM) executed a US$4.3 billion transaction to acquire BHP's (ASX:BHP,NYSE:BHP,LSE:BHP) 33.75 percent share of Antamina’s silver production, a deal expected to add roughly 6.0 Moz of silver to Wheaton's books annually over the next five years.

Looking ahead

As the market moves deeper into 2026, the supply side offers little relief for the prevailing deficit.

Global mined silver supply is forecast to dip 0.3 percent to 844.1 Moz. On the other hand, recycling volumes, incentivized by the high prices, are expected to rise 7 percent this year, largely driven by an 8 percent increase in industrial scrap.

However, as seen in 2025, refinery bottlenecks remain a structural cap on how quickly scrap metal can be reintroduced to the market.

Ultimately, the Silver Institute projects that the structural deficit will gradually erode in the years beyond 2026. But until a slow rebalancing occurs, the silver market remains tethered to the whims of the physical investor.