Silver had a phenomenal 2025, more than doubling from around $30/oz
to above $70 by late December, and the rally continued into the new
year.
Since then, however, silver and gold have both been
volatile.
From a record peak of $5,594 an ounce on Jan.
29, gold suddenly fell 9.5% on Jan. 30 to 4,883/oz. The selloff was
sparked by President Trump announcing that he plans to nominate
Kevin Warsh, a former Federal Reserve governor, as Fed Chairman once
Powell’s term runs out in May.
Warsh, a fiscal hawk who has previously criticized quantitative easing, wants to
unwind the Fed’s massive balance sheet, and may not lower
interest rates as Trump has long criticized Powell for failing to
do.
There was also no doubt some profit-taking, with gold having
appreciated a whopping 66% in 2025, and traders forced to sell to
cover margin calls.
The silver price fell up to 36%
on Jan. 30, its biggest one-day wipeout on record, as Bloomberg
describes it. The metal had just completed a rapid surge of more
than 50% in only a few weeks.
Bloomberg reports, The worst silver sell-off in history at the end of January was
accelerated by the growing footprint of retail investors in
leveraged exchange-traded funds [who were forced to sell],
according to the Bank for International Settlements.
Leveraged (2x or 3x long) exchange-traded funds (ETFs) and
exchange-traded commodities (ETCs) provided extremely amplified
exposure to silver. Following the massive rally in 2025 and early
January 2026, silver prices reversed, leading to severe declines in
leveraged long products as they mechanically unwound their futures
exposure.
Fast forward to this week, and precious metals
took another hit.
Everything changed with the war in the
Middle East instigated by the United States and Israel, which
attacked Iran on Feb. 28.
With oil prices spiking due to
the closure of the Strait of Hormuz, inflation fears are back, and
suddenly, the prospect of cutting interest rates is off the table.
In a 180-degree turn, the word in financial circles is now for the
Fed to raise interest rates to quell galloping inflation.
Spot
gold fell Wednesday, March 18 to a one-month low of $4,874.19,
“pressured by a stronger dollar and a jump in oil prices
that stoked inflation fears and reinforced bets that the U.S.
Federal Reserve will not cut interest rates soon,” Reuters stated.
Also, “a Labor Department report
showed US producer prices increased more than expected in
February and could accelerate further due to the war.”
Spot
silver fell 3% to $76.90.
As we expected, The Fed held rates steady Wednesday, within a range of 3.5 to 3.75%.
The Iran war and stagflation
Source: Trading Economics
Source: Trading Economics
Sixth year of deficits
In an op-ed piece carried by Kitco News, Frank Holmes, CEO of US Global Investors, says RBC expects the
physical silver market to remain tight in the near term, projecting
a gold/silver ratio of 60-65 over the next few years. Covered silver
producers and precious metal royalty equities are pricing an average
silver price of $122/ounce, quite a bit higher than the current spot
level of $76.
There is a significant, ongoing structural
shortage of physical silver in 2026, marking six consecutive years
of deficits where industrial and investment demand outweighs supply.
While exchange-traded paper silver exists, physical silver is
increasingly scarce, with major inventories in London, New York, and
Shanghai experiencing rapid depletion.
Analysts estimate the cumulative supply deficit since 2021 at
roughly 820 million ounces — nearly a full year of global mine
production, gone.
Record demand from industrial sectors,
particularly solar panels, electronics and electric vehicles, is
outpacing flat mining supply.
The three largest silver
inventories (Shanghai, COMEX, and LBMA) are dropping simultaneously,
with nearly a billion ounces vanishing from visible stocks since
2021.
Source DataTrack COMEX
Source LBMA London vault Silver
Strong demand has led to shortages in physical silver products (bars
and coins) and tight supply in the physical market.
Where is physical silver going?
The short answer is solar panels.
First,
COMEX silver inventory is either eligible metal — belonging to
its owner and not available for exchange delivery — or
registered metal, which has been warranted for delivery against
futures contracts.
Second, we must differentiate between
industrial silver users and institutional investors. Industrial
users rarely source their metal from COMEX registered inventory. It
comes from offtake agreements with mines, with refined silver bought
directly from smelters. This ensures consistent supply and a hedge
against spot price volatility. This procurement method also provides
the specific forms, purities, and quantities needed for
manufacturing, bypassing the high-premium, smaller-lot exchange
market.
According to Real Clear Markets, by 2025, the solar industry was consuming between 200 and 250
million ounces annually, roughly a fifth of global supply.
EVs
consume another 40-60Moz a year, with semiconductors, 5G, medical
devices, and AI data centers drawing enough silver to close the gap
between what mines produce and the world uses.
Future
demand includes solid-state batteries, which may require up to a
kilogram of silver per pack versus 25-50 grams in lithium-ion
battery cells; and nuclear reactor control rods designated for new
reactors to power the AI energy buildout. “The silver market
has no clear answer for where that metal comes from,” states
Real Clear Markets.
Who’s buying COMEX silver?
According to RCM, for 15 consecutive months, through early 2026,
physical silver has been leaving COMEX warehouses at volumes the
exchange has never processed. For 2025, the COMEX settled 474Moz of
physical silver, more than twice the 203Moz settled in 2024.
As
of early 2026, registered silver had fallen about 75% from its 2020
peak.
So, who is buying all the COMEX silver?
According
to the exchange’s delivery data, in January 2026 JP Morgan
issued (sold) 99% of 8.1Moz of silver in a single day’s
delivery notices.
Despite these deliveries, open interest
in the contract increased by nearly 1,500 contracts on the same day.
According to Real Clear Markets,
New buyers were arriving faster than metal was clearing. Someone
was on the other side of all of it, and the data does not name
them directly.
Andy Schectman, who runs Miles Franklin Precious Metals and has
been watching these flows for three decades, calls it a full-blown
run on physical metal — driven by the biggest money in the
United States standing for delivery at levels the exchange has
never seen. He is not describing retail investors or Reddit
communities. He is describing sovereign-adjacent capital,
institutional funds, the kind of accumulation that does not
announce itself.
Real Clear Markets speculates that one of the buyers is Sprott
Physical Silver Trust, one of the largest silver ETFs in the world,
noting that Sprott in January doubled its capital raise program to
$2 billion, enough to buy approximately 18Moz of silver at
then-current prices — or 16% of COMEX registered inventory in
a single move.
Sprott is betting that physical allocated silver is worth more
than the paper claims against it, and it is committing capital to
that thesis at a scale that moves markets.
Probably true. The other likely buyer
is Asia. JP Morgan has reportedly been shipping physical metal
eastward at premiums of $10 per ounce or more above COMEX prices,
with Asian recipients paying the VAT.
That buyers absorbed both the premium and the tax —
willingly, repeatedly — says something about how urgently
they valued the physical bar over any paper substitute.
Finally, Real Clear Markets notes that China recently classified
silver a strategic material and tightened export licenses. During
the first 11 months of 2025, China was a net exporter of refined
silver, shipping more than 4,000 tons. It then abruptly stopped, the
inference being that China is keeping the silver for itself.
RCM’s conclusion?
The industrial demand story is why silver is scarce. The delivery
data is what happens when the people who understand scarcity
decide to act on it.
Concentrate shortage
Most silver is
produced as a byproduct of copper, lead, and zinc mining.
Silver production by source metal. Source: Newman et
al.
In fact, there are few pure-play silver mines; only three mines in
the United States are majority silver; they are Greens Creek in
Alaska, the Lucky Friday mine in Idaho, and the Rochester mine in
Nevada.
Roughly 70–80% of the world’s silver supply is
produced as a byproduct of mining for copper, lead, and zinc.
Dedicated silver mines are rare. As a result, production cannot
quickly increase when demand rises or prices spike.
New
mines take time. It often requires 7–15 years to move from
discovery to meaningful output. At the same time, many existing
mines are dealing with lower quality ore and rising operating
costs.
— The Coast News Group, ‘Silver’s Supply Squeeze’
There is currently a shortage of copper and lead-zinc concentrates,
which is impacting the silver market because there is less
silver-in-concentrate to be separated out by smelters, made into
finished products and shipped to end users.
Copper
There is a significant structural shortage of copper concentrate,
with projections suggesting the deficit will persist, potentially
reaching a 50% supply gap compared to demand by 2040. This crunch is
caused by declining ore grades, mining disruptions (strikes,
accidents), and slow development of new mines, which has caused
treatment and refinement charges (TC/RCs) to plummet to historic
lows. Major mines such as Grasberg, Kamoa-Kakula and Escondida have
faced disruptions, resulting in over a million tonnes of lost
output.The shortage has severely impacted smelting profitability,
particularly in China, where low treatment charges have led to
production cuts.
Heap leaching, which is widely used in Africa for oxide copper ores
and increasing in popularity, is effective for extracting both
copper and silver.
Many operations in Namibia and the African Copperbelt reprocess old
mine tailings dumps, which are rich in copper and often contain
significant silver, using acid leaching to improve overall recovery.
Several copper mines in Africa, particularly in the Democratic
Republic of Congo (DRC) and Zambia, utilize sulfuric acid for their
heap or dump leaching copper operations.
The Middle East accounts for a significant portion of global sulfur,
with reports indicating it produces around 24% to 44% of
the world’s sulphur, predominantly as a byproduct of oil and
gas refining. Roughly half of the global seaborne sulphur trade
transits the Strait of Hormuz.
Over 90% of sulphur imported into Africa’s copper belt comes
from the Middle East and most operations would have less than 2
months supply. Without Middle East sulphur to make sulphuric acid
– because supply chains are cut off – silver supply will
be negatively impacted.
The shift toward electrification,
data centers and AI is boosting demand, creating an untenable gap
between supply and requirements.
The market is expected
to remain tight through at least 2026, with the need for substantial
investment to build new, large-scale mines.
Zinc
There has also been a marked shortage of
zinc concentrate entering 2026, driven by years of declining mine
production, despite a recent 30% surge in Chinese imports to meet
rising smelting capacity. This tight supply has forced treatment
charges to extremely low levels.
The zinc market is
facing a substantial deficit. A shortfall of over 300,000 tonnes of
zinc concentrate in 2024 suggests a trend that is extending into
2026.
Smelter treatment charges — what miners pay smelters to
process ore — dropped to near zero or negative in some deals
by early 2026, signaling a severe shortage of raw materials.
Global
zinc mine production fell for three consecutive years (2022-2024),
reducing the available feedstock for smelters.
Despite
the global shortage, China’s imports of zinc concentrates hit
a record 5.33 million tonnes in 2025 due to massive domestic
smelting expansion, further tightening global supply.
Iran and Russia mainly ship their zinc concentrates to smelters in
China, and the conflict in Iran has led to canceled shipments from
that country.
Chinese smelters are now looking for alternative feedstock to cover
their needs, and are also facing disruptions to supplies from
Russia, where a major new mine has ramped up more slowly than
expected.
Lead
It’s the same story for lead. The
market for lead concentrate remains tight, with limited increases in
volume expected through 2026.
A deficit in lead raw
materials is expected to persist, keeping the market competitive.
Disruptions
at key mines like Boliden’s Tara mine (closed in 2023, ramping
up again in 2024-25) and logistical challenges have reduced
supply.
Sanctions and operational issues, such as those
impacting Russia’s Ozernoye mine, have caused delays and
disrupted supply chains.
Lower mine production has forced
smelters outside of China to cut production, with some, such as Toho
Zinc’s Annaka operation, closing permanently.
Primary silver mines’ output down
Primary silver mine production has faced significant long-term
challenges, with analysts warning of continued constraints and a
lack of growth, leading to a structural market deficit.
Global
silver mine production has been under pressure, with some key
primary producers slashing 2026 guidance, including a 9% cut by
Fresnillo, the world’s largest primary producer.
With
demand frequently outpacing supply, 2026 shows a projected
67-million-ounce shortfall.
Mine supply is not expected
to surpass 2016 peak levels for at least five more years due to an
insufficient number of new projects coming online.
Declining
ore grades at major mines and unfavorable mining regulations —
such as Mexico’s moratorium on new mining concessions —
are restricting output. Since 2018, no new mining concessions have
been granted, a policy upheld by President Sheinbaum, who has stated
no new concessions will be issued during her administration. The
government has heavily targeted open-pit mining, citing severe
environmental damage and excessive water usage in water-scarce
regions.
The average all-in sustaining cost (AISC) is projected to rise as
energy costs increase, particularly impacting the 70-80% of silver
that comes as a byproduct of base-metal mining.
While
some companies (e.g., Pan American Silver) reported record
production in specific quarters, the overall industry is
experiencing a broken supply response, where high prices have not
yet translated into significantly increased primary output.
Gold production flat
Global gold mining production has largely plateaued,
showing minimal growth since 2018 despite high prices, with experts
projecting a gradual decline or peak after 2025-2027. While
production hit record levels in 2024-2025, aging mines, declining
ore grades, and fewer new discoveries are limiting future
supply.
Gold mines have been mining at a higher grade than the reserve grade
for much of the last decade. Purposely mining areas of the orebody
with the highest-grade material is known as high grading.
Mining
the high-grade accessible areas of their deposits was one way for
operations to bolster margins when facing low metal prices.
Small
wonder the #1 risk identified for mining companies over 2026 is
rising operational complexity which is being driven by more complex
ore bodies, much deeper mines and significantly declined ore
grades.
And mining capital is increasingly
favoring brownfield expansions, which offer 50% to 70% faster production timelines compared to
new greenfield projects.
Global mined production has
remained relatively steady (around 3,000–3,300 tonnes per
year) over the past several years.
Experts, including
from the World Gold Council, indicate that mining production is
likely near a peak, expected to plateau between 2025 and 2027 before
potentially falling.
Peak gold — Richard Mills
Large gold mining companies saw reserves shrink roughly 26% from
2012–2017, and no major new gold deposits were found in 2023
or 2024, pointing to long-term supply challenges.
While
global supply was somewhat stable, countries like Mali have seen
production slumps, and major miners like Barrick reported lower quarterly output in 2025.
Rising costs, political instability, and lower quality
ore (lower grade) are contributing to the difficulty of increasing
production.
Despite higher gold prices, the
industry is struggling to significantly increase output, suggesting
a potential long-term trend of falling supply.
2026 silver run
According to an AI-generated summary by TradingKey:Silver prices surged above $90/oz in early 2026 due to a
confluence of four structural forces: a physical run on paper
silver, China’s export controls, increased central bank
accumulation, and rising demand from nuclear power for AI and
clean energy. The credit crisis in the paper silver system is
forcing institutional investors to demand physical delivery,
draining COMEX and LBMA inventories and spiking lease rates.
China’s reclassification of silver as a strategic material,
restricting exports, has fragmented the global market and
exacerbated supply shortages. Emerging market central banks are
accumulating silver as a monetary and strategic asset, alongside
significant demand for nuclear reactor control rods. These factors
indicate a fundamental shift in silver’s valuation, moving
it beyond an industrial commodity to a triple-identity asset:
industrial, monetary, and strategic.
Conclusion
Despite selloffs
at the end of January and today, March 18, the market dynamics for
silver haven’t changed. Industrial and institutional demand is
exceeding mined supply, with 2026 expected to record the sixth
straight year of deficits.
Most silver demanded by
industry was going towards solar panels. But other sectors are
growing rapidly, acting as the new primary drivers of silver
consumption.
AI and data center infrastructure are currently experiencing a
monstrous appetite for silver, as it is used extensively in
high-performance computing, connections, and servers to prevent
overheating.
EV consumption continues to rise, with 25-50 grams of silver used
per vehicle, significantly higher than internal combustion engines.
Automotive demand is projected to grow by 3.4% annually through
2031. Add in solid state batteries and EV’s are huge users of
silver.
The accelerated rollout of 5G infrastructure and increasing
complexity in semiconductor chips require massive amounts of silver
for electrical contacts and conductive paths.
Silver use in advanced medical electronics and devices is steadily
increasing.
Mine supply is not expected to surpass 2016 peak levels for at least
five more years due to an insufficient number of new projects coming
online.
Declining ore grades at major mines and
unfavorable mining regulations — such as Mexico’s
moratorium on new mining concessions — are restricting
existing output.
Most silver is produced as a byproduct
of copper, lead, and zinc mining. Silver is also found within gold
deposits.
Because pure silver mines are rare, production
can’t quickly increase when prices spike. Even when a new mine
comes online, it often takes seven to 15 years to get to meaningful
output.
Making matters worse, there is a shortage of
copper and lead-zinc concentrates from which most silver is refined.
Treatment charges are so low, even negative, that smelters in some
cases are having to pay miners just to keep their operations
going.
Without copper concentrate, nearly 23% of silver
supply is gone. Without lead-zinc concentrate, 32% of silver supply
is gone.
Global gold mining production has largely
plateaued, showing minimal growth since 2018 despite high prices
— diminishing another source of silver supply.
Meanwhile,
institutional investors are backing up the truck for registered
silver from metal exchanges like the COMEX.
The three
largest silver inventories (Shanghai, COMEX, and LBMA) are dropping
simultaneously, with nearly a billion ounces vanishing from visible
stocks since 2021.
China used to be a net silver seller
but Beijing, apparently aware of its scarcity, is now hoarding
silver, having declared it a strategic material and tightening
export licenses.
Will the silver mining industry be able to produce, or discover,
enough silver that it’s able to meet future demand?
The silver market is experiencing a severe structural deficit, with
demand consistently outstripping both primary mining output and
recycling, leading to a projected sixth consecutive year of
shortages in 2026. Despite rising prices and increased recycling
efforts, the shortfall persists, with the 2026 deficit projected to
reach 67 million ounces.
Given all that we know about
silver, it seems impossible to us that the market is, or will be, in
surplus, despite global silver output forecast to increase by 1.5% in 2026 to 1.05 billion ounces, the highest level in a decade.
The silver deficit is real and prices, despite some short-term
volatility, will soon reflect market realities and rise accordingly.
Remember: While most of the mined gold is still around, either cast
as jewelry, or smelted into bullion and stored for investment
purposes, the same cannot be said for silver. It’s estimated
around 60% of silver is utilized in industrial applications with 80%
of that amount ending up in landfills, like solar panels and
electronics, leaving only 40% for investing.
Richard (Rick) Mills
aheadoftheherd.com
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